For $10,000,you can purchase a five-year annuity that will pay $2,504.57 per year for five years.The payments occur at the end of each year.Calculate the effective annual interest rate implied by this arrangement.
A)8%
B)9%
C)10%

Question

Quizplus · Accepted Answer

The effective annual interest rate is 8%. This can be calculated using the formula:r = (1 + i)^n - 1where r is the effective annual interest rate, i is the nominal annual interest rate, and n is the number of years.In this case, i = 2,504.57/10,000 = 0.250457 and n = 5. Plugging these values into the formula, we get:r = (1 + 0.250457)^5 - 1 = 0.08

For $10,000,you Can Purchase a Five-Year Annuity That Will Pay