Today is John Smith's birthday, turning 70 years old. Theaverage life expectancy of a 70...

Today is John Smith's birthday, turning 70 years old. The average life expectancy of a 70 years old male is about 10 years. Mr. Smith wishes to buy an investment that will pay him an annuity payment, with the first payment starting today. He then wants a payment every year on his birthday up to and including the final payment on his 80th birthday, 11 payments from now. If John receives $350,000.00 for each payment on his birthday, starting today, how much does he have to pay for this annuity investment cost today if the interest rate is 4% per annum? Round your answer to two decimal places.

Expert Solution

Number of payments, n = 11

The payment starts today. It is an annuity due problem

PMT = 350,000

r = 4%

John Smith will have to pay $3,188,813.52 today for this annuity due.

jeff jeffy answered 2 years ago

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