You are considering investing $750 in a 10 year annuity. The rate of return you require is 6.5%. What annual cash flow from the annuity will provide the required return?

A) $70.77
B) $102.96
C) $104.33
D) $114.31
E) $129.27

Question

Brandon Pearson · Accepted Answer

Final Answer : C, Explanation :   The annual cash flow from the annuity can be calculated using the formula for the present value of an annuity:   P V = P M T × [ 1 − ( 1 + r ) − n r ] PV = PMT 	imes \left[\frac{1 - (1 + r)^{-n}}{r}ight] P V = PMT × [ r 1 − ( 1 + r ) − n ​ ]  , where PV is the present value ($750), PMT is the annual payment, r is the annual interest rate (6.5% or 0.065), and n is the number of periods (10 years). Rearranging the formula to solve for PMT gives:   P M T = P V × r 1 − ( 1 + r ) − n PMT = PV 	imes \frac{r}{1 - (1 + r)^{-n}} PMT = P V × 1 − ( 1 + r ) − n r ​  . Substituting the given values and solving for PMT gives approximately $104.33.

You are considering investing $750 in a 10 year annuity. The rate of return you require is 6.5%. What annual cash flow from the annuity will provide the required return?

A) $70.77
B) $102.96
C) $104.33
D) $114.31
E) $129.27

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Learning Objectives

Related questions

You are considering investing $750 in a 10 year annuity. The rate of return you require is 6.5%. What annual cash flow from the annuity will provide the required return?A) $70.77B) $102.96C) $104.33D) $114.31E) $129.27

Definitions

Learning Objectives

Learning Objectives

Related questions

You are considering investing $750 in a 10 year annuity. The rate of return you require is 6.5%. What annual cash flow from the annuity will provide the required return?

A) $70.77
B) $102.96
C) $104.33
D) $114.31
E) $129.27