An insurance company offers a retirement annuity that pays $100,000 per year for 15 years, growing...
An insurance company offers a retirement annuity that pays $100,000 per year for 15 years, growing at an “inflation-compensator” rate of 3%, and sells for $806,070. What is the interest rate? Show your work.
Homework Answers
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TO CALCULATE INTEREST RATE, WE HAVE TO USE TRIAL & ERROR METHOD. OUR PURPOSE IS THAT OUR ANSWER SHOULD BE AROUND 8.0607, ONE VALUE SHOULD BE HIGHER THAN THIS ONE AND ANOTHER ONE SHOULD BE LOWER THAN THIS, THEN WE CAN USE THE FORMULA TO SOLVE IT
![File Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum Calibri ー E ゴWrap Text General aCopy B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard ED551 DX Font Alignment Number Styles Cells Editing DY DZ EA EB EC ED EF 551 552 553 554 present value of growing annuity PV = ANNUAL PAYMENT/(rg)* [1-((1+g)/(1+r))m] PV- 806070 3% 100000 15 ANNUAL PAYMENT 556 557 558 559 560 561 562 563 564 565 566 567 568 569 Answer 1 | CALCULATOR .. LOAN OPTIONS 806070 100000/(r 0.03)[1-((1+0.03)/(1+r))A15] 806070/100000-1/(r- 0.03) [1-((1+0.03)/(1+r))A15] 8.06071/(r 0.03)* [1-((1+0.03)/(1+r))A15] USING TRIAL AND ERROR rL-10% rL-1196 rH-12% r-rL(PV(L) PV)/(PV(L)-PV(H)) *(rH-rL) r 11(8.42972547-8.0607/(8.42972547-7.94850198)*(12-11) PV(L)8.95764268 PV 1/(0.1- 0.03)* (1-(1+0.03)/(1+0.1))A15) PV(L)8.42972547 PV -1/(0.12-0.03)* (1-((1+0.03)/(1+0.12))A15) PV(H)7.94850198 PV-1/(0.12- 0.03) (1-((1+0.03)/(1+0.12))A15) r11.766848 11.77% CAP STRU VALUE BOX DILUTION DOLLAR COST AVGMORTGAGE EXPO Sheeti Sheet2 ShelI rences: x261 12:00](http://img.homeworklib.com/questions/9e840260-6fa6-11ea-b373-190f83ef2979.png?x-oss-process=image/resize,w_560)
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