Danny invests $124 090 in a fund and expects to receive $10 000 per year,at the end of each year,for the next 30 years.What is the approximate interest rate provided on the annuity?
A)8 percent
B)6 percent
C)9 percent
D)7 percent

Question

Quizplus · Accepted Answer

The interest rate can be found using the formula for the present value of an annuity: $PV = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right)$, where PV is the present value ($124,090), PMT is the annual payment ($10,000), n is the number of periods (30 years), and r is the interest rate per period. By plugging the values into the formula and solving for r, or by using a financial calculator or spreadsheet, we find that the interest rate that closely matches the given conditions is approximately 7 percent.

Danny Invests $124 090 in a Fund and Expects to Receive