Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest.The annuity costs $200,000 today.What is the amount of each annuity payment?

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for the present value of an annuity due is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the annuityPMT is the amount of each annuity paymentr is the interest rate per periodn is the number of periodsIn this case, we have:PV = $200,000r = 6% / 2 = 3% per periodn = 25 * 2 = 50 periodsSubstituting these values into the formula, we get:$200,000 = PMT * [1 - (1 + 0.03)^-50] / 0.03PMT = $7,546.70Therefore, the amount of each annuity payment is $7,546.70.

Uptown Insurance Offers an Annuity Due with Semiannual Payments for 25