You just purchased an annuity that will pay you $24,000 a year for 25 years, starting today....

You just purchased an annuity that will pay you $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8%?

		$256,195
		$251,409
		$245,621
		$276,690
		$258,319

Solutions

Expert Solution

Information provided:

Annual payment= $24,000

Time= 25 years

Discount rate= 8%

The question is concerning finding the present value of an annuity due since the question mentions that the annuity is paid from today. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to calculate the present value of the annuity:

PMT= 24,000

N= 25

I/Y= 8

Press the CPT and PV to compute the present value.

The value obtained is 276,690.20.

Therefore, the present value of the annuity is $276,690.20.

Hence, the answer is option c.

In case of any query, kindly comment on the solution.

jeff jeffy answered 7 months ago

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