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An uncle of yours who is about to retire wants to sell some of his stock...

An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him with income of $11,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost him to buy such an annuity today?

Select the correct answer.

a. $133,113.59
b. $133,122.49
c. $133,149.19
d. $133,131.39
e. $133,140.29
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Answer #1

Present value of annuity = Annuity * [ 1 - 1 / ( 1 + r)n] / r

Present value of annuity = 11,000 * [ 1 - 1 / ( 1 + 0.0725)30] / 0.0725

Present value of annuity = 11,000 * 12.103663

Present value of annuity = $133,140.29

You can also find this using a a financial calculator.

PMT 11,000

I/Y 7.25

N 30

CPT PV

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