3-83 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 begin at the end of the year.

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity to find the fixed annual payments:

PV = C * [(1 - (1 + r)^(-n)) / r]

PV = present value = $2,000,000
r = annual interest rate = 8%
n = number of payments = 10

Solving for C:

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

C = $298,058.98

Therefore, the annual cash flows are $298,058.98.

3-83 Calculate the Annual Cash Flows of a $2 Million,10-Year