Problem 15-1 (LG 15-2) a. What is the amount of the annuity purchase required if you...

Problem 15-1 (LG 15-2)

a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $230,000 for 20 years? Assume that the annuity will earn 10 percent per year.
b. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $2 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of the current year.
c. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $2 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of six years.

(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Solutions

Expert Solution

a. Amount of the annuity purchase = 1,958,119.66

NPER	20.00
FV	0
PMT	230000.0
Rate	10.00%

PV	$1,958,119.66	[-pv(rate,nper,pmt,fv,0)

b. Annual cash flows (annuity payments) from a fixed-payment annuity =234,919.25

NPER	20
FV	0
PV	2000000
Rate	10.00%

PMT	234919.25	[-pmt(rate, nper, pv,fv)]

c. Annual cash flows (annuity payments) from a fixed-payment annuity = $416,173.78

NPER	20
FV	0
PV	3543122	[2000000*(1+10%)^6]
Rate	10.00%

PMT	416173.78	[-pmt(rate, nper, pv,fv)]

ekkarill92 answered 2 years ago

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