Question:
What is the value today of a 15-year annuity that pays $650 a year? The annuity's first payment occurs six years from today. The annual interest rate is 11 percent for Years 1 through 5, and 13 percent thereafter.
Annuity:
An annuity is a special type of contract that entails regular payments of a fixed amount at a predetermined interval. These regular payments form a base (i.e. principal) amount on which interest is compounded simultaneously. On a future specified date, the payee receives a larger amount (i.e. the principal amount with interest accrued).
The present value indicates the current value of the annuity. These are not only tax-deferred but also have a guaranteed payout.
Answer and Explanation:1
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Let's use the following notations:
- Yearly payment (in $) = P
- Interest Rate = i
- Number of payments= n
Then, the present value of the annuity, P.V. =...
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