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Awira just purchased an annuity that will pay RM67,000 a year for 30 years. If the...

Awira just purchased an annuity that will pay RM67,000 a year for 30 years. If the interest offered is 11%, starting today. What was the purchase price for this annuity?

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Answer #1

Solution) Amount per year (PMT) = RM67,000

Number of years (Nper) = 30

Rate = 11%

Since the payments stat today, hence, it is an annuity due. So, Type = 1

Future Value (FV) = 0

The present value is calculated using the PV function in Excel

= PV(Rate, Nper, PMT, FV, Type)

= PV(11%, 30, 67000, 0, 1)

= -$646,557.35

(Ignore negative sign)

The purchase price of the annuity = $646,557.35

Please comment in case of any doubts or clarifications required. Please Thumbs Up!!

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