Question

Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity due earning a guaranteed 8 percent annually if the payments are to start at the beginning of this year.

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Answer 1

Information provided:

Present value= $2,000,000

Time= 10 years

Interest rate= 8%

The question is concerning finding the annual cash flow e of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator in BGN mode:

PV= -2,000,000

N= 10

I/Y= 8

Press the CPT key and PMT to calculate the annual cash flow.

The value obtained is 275,980.53.

Therefore, the annual cash flow is $275,980.53.

In case of any query, kindly comment on the solution.