Question

26. You have received a settlement from an insurance company which will pay you $100,000 per year for 12 years at the end of each year and J.G. Wentworth wants to buy your annuity. What is JG Wentworth’s annual rate of return (interest rate) if they are willing to pay you $500,000 today?

A. 7.56%

B. 18.21%

C. 16.94%

D. Interest rate cannot be calculated.

Answer 1

Ans C. 16.94%

Annuity PV Factor =	P [ 1 - ( 1 + r )^-n ]
	r
500000 =	100000* ( 1 - ((1 / (1 + r%)^12)))
	r%
500000 / 100000 =	( 1 - ((1 / (1 + r%)^12))) / r%
5 =	( 1 - ((1 / (1 + r%)^12))) / r%
r =	16.94%