For $10,000 you can purchase a 5-year annuity that will pay $2358.65 per year for five years. The payments are made at the beginning of each year. Calculate the effective annual interest rate implied by this arrangement: (approximately)
A) 8%
B) 9%
C) 10%
D) none of the above

Question

Quizplus · Accepted Answer

Using a financial calculator, we can find that the present value of the annuity is $10,000. With payments of $2358.65 per year for five years, this implies an effective annual interest rate of approximately 9%.

For $10,000 You Can Purchase a 5-Year Annuity That Will