Question

Frye Company is considering investing in an annuity contract that will return $50,000 annually at the end of each year for 20 years. What amount should Frye Company pay for this investment if it earns an 8% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 52.75.)

Frye Company pay for investment $

Answer 1

Annual payments = $50,000

Time period (n) = 20 years

Interest rate (i) = 8%

Present value annuity factor (8%, 20) = 9.81815

Present value of Annual payments = Annual payments x Present value annuity factor (8%, 20)

= 50,000 x 9.81815

= $490,907.50

Frye Company will pay for investment = $490,907.50

Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.