Your aunt is about to retire,and she wants to buy an annuity that will supplement her income by $65,000 per year for 25 years,beginning a year from today.The going rate on such annuities is 6.25%.How much would it cost her to buy such an annuity today?
A)$770,963.15
B)$811,540.16
C)$852,117.17
D)$894,723.02

Question

Quizplus · Accepted Answer

To calculate the cost of the annuity, we can use the present value of an annuity formula:

PV = PMT x [(1 - (1 / (1 + r)^n)) / r]

Where:
PMT = $65,000
r = 6.25% = 0.0625 (annual interest rate)
n = 25 (number of years)

Plugging in the numbers, we get:

PV = 65,000 x [(1 - (1 / (1 + 0.0625)^25)) / 0.0625]
PV = $811,540.16

Therefore, it would cost your aunt $811,540.16 to buy the annuity today. Option B is correct.

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