If Frank save $46,000 today in exchange for a 6.75 percent 15-year annuity, what will the...

Question

Question

If Frank save $46,000 today in exchange for a 6.75 percent 15-year annuity, what will the annual cash flow be?

Group of answer choices

$4,971.10

$4,666.67

$4,519.27

$5,203.16

$5,338.09

Answer 1

Answer #1

PV of annuity

P = PMT x (((1-(1 + r) ^- n)) / r)
Where:
P = the present value of an annuity stream	$46,000.00
PMT = the dollar amount of each annuity payment	To be calculated
r = the effective interest rate (also known as the discount rate)	6.75%
n = the number of periods in which payments will be made	15

PV of annuity=	PMT x (((1-(1 + r) ^- n)) / r)
46000=	PMT x (((1-(1 + 6.75%) ^- 15)) / 6.75%)

Annuity payment=	46000/(((1-(1 + 6.75%) ^- 15)) / 6.75%)
Annuity payment=	$ 4,971.10

Hence option 1 is correct.

Answer 2

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