Question

Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with income of $50,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost her to buy such an annuity today

Answer 1

Answer:

$605,183.13

Explanation:

For computing the cost her to buy an annuity today we need to find out the present value by applying the PV formula i.e shown in the attachment

Provided that,  

Future value = $0

Rate of interest = 7.25%

NPER = 30 years

PMT = $50,000

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $605,183.13