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An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn a rate of return of 6.5 percent, what is the most you are willing to pay as a lump sum today to buy this annuity?

a. $32,008.24
b. $34,208.16
c. $44,591.11
d. $43,008.80
e. $38,927.59

Respuesta :

Answer:

c. $44,591.11

Explanation:

In this question, we use the Present value formula that is shown in the attachment. Kindly find it below:

Provided that

Future value = $0

Rate of interest = 6.5% ÷ 4 = 1.625%

NPER =  20 years × 4 = 80

PMT = $1,000

The formula is shown below:

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

So, after solving this, the lump sum amount is $44,591.11

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