aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with income of $50,000 per year for 30 years, beginning a year from today.The going rate on such annuities is 7.25%.How much would it cost her to buy such an annuity today?
A)$574,924
B)$605,183
C)$635,442
D)$667,214
E)$700,575

Question

Quizplus · Accepted Answer

Using the present value of an annuity formula, we can calculate the cost of the annuity. PV = PMT * (1 - (1+r)^-n)/r, where PV is the present value, PMT is the annual payment, r is the interest rate per period (in this case, per year), and n is the number of periods (in this case, 30). Applying this formula, we get PV = $50,000 * (1 - (1+0.0725)^-30)/0.0725 = $605,183. Therefore, the best choice is B.

Aunt Is About to Retire, and She Wants to Sell