An insurance company offers you an end of year annuity of 48

An insurance company offers you an end of year annuity of $48,000 per year for the next 20 years. The appropriate discount rate is 9 percent. What should you be willing to pay today for this annuity? $471,271 $438,170 None of these are correct. $550,556 $408,651 Save Question 14 (1 point) Kurt won a lottery and will receive $1,000 a year for the next 50 years. The value of his winnings today discounted at his discount rate is called which one of the following? Net Future Value. Present Value. Compound Value Future Value.

Solution

1.

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$48000[1-(1.09)^-20]/0.09

=$48000*9.128545669

=$438170(Approx)

2.

The correct option is :present value

We are calculating the present value of annuity(ie equal values of receipt for a fixed interval of time at a specified interest rate).