Your 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

The present value of a 30-year annuity can be calculated using the formula:
PV = A * ((1 - (1+r)^-n) / r)
where PV is the present value, A is the annual payment, r is the interest rate, and n is the number of periods.

In this case, A = $50,000, r = 7.25%, and n = 30. Plugging in the numbers, we get:
PV = $50,000 * ((1 - (1+0.0725)^-30) / 0.0725) = $605,183

Therefore, the best choice is B) $605,183.

Your Aunt Is About to Retire,and She Wants to Sell