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County Ranch Insurance Company wants to offer a guaranteed annuity in units of ​$500, payable at...

County Ranch Insurance Company wants to offer a guaranteed annuity in units of ​$500, payable at the end of each year for 25 years. The company has a strong investment record and can consistently earn 7% on its investments after taxes. if the company wants to make 1% on this contract, what price should it set on​ it? Use 6% as the discount rate. Assume it is an ordinary annuity and the price is the same thing as present value. What price should the company set on the annuity​ contract? $ blank. (Round to the nearest cent).

Solutions

Expert Solution

Price is equal to the present value of annuity at 6%

= Annual amount*Present value annuity factor

= 500*PVAF(6%, 25 years)

= 500*12.7834

= $6,391.7

hence, the price should be 6,391.7

jeff jeffy answered 2 years ago
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