You are considering an annuity that costs $100,000 today.The annuity pays $6,000 a year.The rate of return is 4.5 percent.What is the length of the annuity time period?

Question

Quizplus · Accepted Answer

We can use the present value of an annuity formula to solve the problem:
PV = PMT x [1 - (1 + r)^(-n)] / r
where PV is the present value, PMT is the payment per period, r is the interest rate, and n is the number of periods.
Plugging in the given values, we get:
100,000 = 6,000 x [1 - (1 + 0.045)^(-n)] / 0.045
Solving for n, we get n = 31.49 years. Therefore, the answer is choice C, 31.49 years.

You Are Considering an Annuity That Costs $100,000 Today