An annuity that pays $12,500 a year at an annual interest rate of 5.45 percent costs $150,000 today. What is the length of the annuity time period?

Question

Quizplus · Accepted Answer

We can use the formula for present value of an annuity:
Present value = Payment x ((1 - (1 + r)^-n) / r)
where r is the annual interest rate, n is the number of years, and payment is the amount paid each year.
Substituting the given values, we get:
$150,000 = $12,500 x ((1 - (1 + 0.0545)^-n) / 0.0545)
Simplifying this equation, we get:
n = 19.91 years
Rounding off to the nearest integer, the length of the annuity time period is 20 years. Therefore, the best choice is D.

An Annuity That Pays $12,500 a Year at an Annual