June received a life insurance payout from her grandmother i

June received a life insurance payout from her grandmother in the form of an annuity. She will get $15,000 per year for the next 30 years. How much is that worth today if the current long term interest rate is 2.2%? This is an ordinary annuity.

Solution

An ordinary Annuity is an annuity for which the payments occur at the end of each time period.

P = A [ ( 1+r) ⁿ -1 ] / r ( 1+r)ⁿ

P = $ 15000 [ ( 1+0.022)³⁰ - 1 ] / 0.022 ( 1+0.022) ³⁰

P = $ 326,888.82