Question

Brief Exercise A-11

Robben Company is considering investing in an annuity contract that will return $30,500 annually at the end of each year for 19 years.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What amount should Robben Company pay for this investment if it earns an 6% return? (Round answer to 2 decimal places, e.g. 25.25.)

Robben Company should pay $

Answer 1

Ans:

Annual Return : $30,500

Interest Rate : 6%

Time period : 19 Years

Annuity Factor @6% for 19 years : 1/(1.06)^1 + 1/(1.06)^2 + 1/(1.06)^3 +............... 1/(1.06)^19 :  11.15812 (Or use your factor table)

Investment amount should be : Annuity Factor* Annual Return :

= $30,500 * 11.15812 = $340,322.66

Please check values in your factor table for any fraction error.

Value of investment using excel factor : $340,322.55 [in case 100% fraction accuracy required]

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