Calculate the annual cash flows of a $2 million,10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

Question

Quizplus · Accepted Answer

11efb84d_bbf7_b3c2_9137_e9dcfe844d08_TB1314_00 We can use the formula for calculating the fixed-payment annuity:

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

Where PV is the present value or initial investment, r is the annual interest rate, and n is the number of periods (or years in this case).

Given:

PV = $2 million
r = 8%
n = 10 years

Substituting the values in the formula, we get:

Annual Payment = (2,000,000 x 0.08) / [1 - (1+0.08)^(-10)]
Annual Payment = $298,058.98

Therefore, the correct answer is C, which means the annual cash flows of the $2 million, 10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year is $298,058.98.

Calculate the Annual Cash Flows of a $2 Million,10-Year Fixed-Payment