Question

You have a chance to buy an annuity that pays $18,000 at the beginning of each year for 5 years. You could earn 4.5% on your money in other investments with equal risk. What is the most you should pay for the annuity?

Group of answer choices
a) $82,575.46
b) $94,961.78
c) $71,840.65
d) $93,310.27
e) $69,363.39

Answer 1

The most you should pay for the annuity is $82,575.46.

Step-by-step explanation:

The most you should pay for the annuity can be calculated using the present value formula for an annuity. The formula is:

Present Value = Annual Payment * ((1 - (1 + Interest Rate)^(-Number of Years)) / Interest Rate)

In this case, the annual payment is $18,000, the interest rate is 4.5%, and the number of years is 5. Plugging in these values into the formula, we get:

Present Value = $18,000 * ((1 - (1 + 0.045)^(-5)) / 0.045) = $82,575.46

Therefore, the most you should pay for the annuity is $82,575.46, so the correct answer is option a) $82,575.46.