Question

a. What is the amount of the annuity purchase required if you wish to receive a...

a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $240,000 for 20 years? Assume that the annuity will earn 10 percent per year.
b. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1.4 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of the current year.
c. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $1.4 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of six years.

Homework Answers

Answer #1

a

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
PV= 240000*((1-(1+ 10/100)^-20)/(10/100))
PV = 2043255.29

b

PVAnnuity Due = c*((1-(1+ i)^(-n))/i)*(1 + i )
C = Cash flow per period
i = interest rate
n = number of payments
1400000= Cash Flow*((1-(1+ 10/100)^-20)/(10/100))*(1+10/100)
Cash Flow = 149494.07

Please ask remaining parts separately, questions are unrelated. I have done one bonus

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