Planning for my retirement, my financial advisor recommends that I purchase a perpetual annuity. The guaranteed...
Planning for my retirement, my financial advisor recommends that I purchase a perpetual annuity. The guaranteed rate of return on the annuity is 4.5%. If I want to receive $90,000 every year, how much must I invest today?
Homework Answers
present value of perpetuity = cash flow per year/interest rate
=>
Present value = 90000/4.5%
= 2000000
hence one should invest 2,000,000 to get 90,000 per year forever at 4.5%
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