Question

Nicki​ Johnson, a sophomore mechanical engineering​ student, receives a call from an insurance​ agent, who believes that Nicki is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her an annual fixed income. The annuities are as follows in the popup​ window

ANNUITY   INITIAL PAYMENT INTO ANNUITY (AT t = 0)   AMOUNT OF MONEY RECEIVED PER YEAR   DURATION OF ANNUITY (YEARS)
A   60,000   9,000   15
B   50,000   7,500   12
C   50,000   6,500   22

What rate of return could Nicki earn on her money if she place it in annuity A with ​$9,000 payment per year and 15 years​ duration?

Answer 1

solution :

rate of return of A

= RATE( 15, (9,000), 60000, 0) = 12.40%

rate of return B

= RATE ( 12 , (7,500) , 50,000,0) = 10.45%

rate of retturn C

= RATE ( 22,(6500),50000,0) = 11.90%