The Insolvent Insurance Co. will pay you $2,500 a year for 10 years in exchange for...

Question

Question

The Insolvent Insurance Co. will pay you $2,500 a year for 10 years in exchange for $30,000 today. What interest rate will you earn on this annuity?

5.50 percent

5.60 percent

5.55 percent

-3.18 percent

3.18 percent

Answer 1

Answer #0

Ans. Interest rate -3.18 Percent.

r = rate of interest = ?

PV = Present value = given $30000

Payment = given $2500

Payment = r(PV)/1-(1+r)^-n

2500 = r (3000)/1-(1+r)^-10

By solving

r = -3.18

Answer 2

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