Your neighbor Bob has two annuities. The first annuity will pay him $10,000 per month for...

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Your neighbor Bob has two annuities. The first annuity will pay him $10,000 per month for...

Your neighbor Bob has two annuities. The first annuity will pay him $10,000 per month for the next 10 years. The second annuity will pay him $15,000 per month for the following 10 years (years 11 through 20). Assuming a discount rate of 6%, what is the present value of the annuities?

a) $2,251,837

b) $906,288

c) $900,735

d) $3,000,000

e) $1,643,345

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Answer 1

Answer #1

PV of Annuities = CF * PVAF(r%, n)

Annuity 1:

PV of Annuities = CF * PVAF(r%, n)

= $ 10000 * PVAF(0.5%,120)

= $ 10000 * 90.0735

= $ 900,735

Option C is correct.

Annuity 2:

PV of Annuities = CF * PVAF(r%, n)

= $ 10000 * PVAF(0.5%,120)

= $ 10000 * 49.5073

= $ 495,073.18

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Answer 2

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