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Jessica has an insurance policy that will pay her an annual annuity of $450 at the...

Jessica has an insurance policy that will pay her an annual annuity of $450 at the end of each year for a total of 10 consecutive years. However, the terms of the policy are such that the annuity's first payment will not be made until the end of year 5. Determine the present value of Jessica's policy if the interest rate is 3%.

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Expert Solution

Present value=Cash flows*Present value of discounting factor(rate%,time period)

=450/1.03^5+450/1.03^6+...................+450/1.03^14

=450[1/1.03^5+1/1.03^6+...............+1/1.03^14]

=(450*7.578974737)

=$3410.54(Approx)

jeff jeffy answered 2 years ago
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