Question

New Jersey Mutual has offered you a single premium annuity that will pay you $12,000 per year (end of year) for the next 15 years. If you must pay $109,296 today for this annuity, what is your expected rate of return?

Answer 1

Answer:

7%

Explanation:

The Present value of this single annuity= $109295.  

$amount of each annuity= 12000.  

By estimation, if we take interest rate(r) =0.07 or 7% in annuity factor formula it will be ((1-(1/(1+0.07)^15))/0.07)=9.1079.  

Now, 109295/12000 =9.1079. So, here answer will be 7%