Today,you are purchasing a 20-year,6 percent annuity at a cost of $48,350.The annuity will pay annual payments starting one year from today.What is the amount of each payment?

Question

Quizplus · Accepted Answer

To calculate the amount of each payment, we can use the formula for the present value of an annuity:

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

where PV is the present value (in this case, $48,350), A is the amount of each payment, r is the interest rate per period (in this case, 6% per year), and n is the number of periods (in this case, 20 years).

Plugging in the numbers, we get:

48,350 = A x [(1 - (1 + 0.06)^-20) / 0.06]

Solving for A, we get:

A = 4,215.37

Therefore, the amount of each payment is $4,215.37. Answer choice B is correct.

Today,you Are Purchasing a 20-Year,6 Percent Annuity at a Cost