Question

How to it with financial calculator BA ll Plus

a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $200,000 for 20 years? Assume that the annuity will earn 10 percent per year.
b. Calculate the annual cash flows from a $1 million, 20-year fixed-payment annuity earning a guaranteed 10 percent per year if payments are to begin at the end of the current year.
c. Calculate the annual cash flows from a $1 million, 20-year fixed-payment annuity earning a guaranteed 10 percent per year if payments are to begin at the end of year 5.

Answer 1

a. $10,416.49

b. $136,387.62

c. $81,536.95

Step-by-step explanation:

To calculate the annuity purchase required for a fixed payment of $200,000 for 20 years at an annual interest rate of 10 percent using the BA II Plus financial calculator, you would use the Present Value of Annuity formula.

Enter N=20, I/Y=10, PMT=-200,000, and then compute PV to get the amount: $10,416.49.

For part b, to find the annual cash flows from a $1 million, 20-year fixed-payment annuity with a 10 percent annual interest rate, set N=20, I/Y=10, PV=-1,000,000, and then compute PMT.

The result is $136,387.62, representing the annual cash flow.

In part c, when payments start at the end of year 5, adjust the N value to 15 (20 - 5). Enter N=15, I/Y=10, PV=-1,000,000, and compute PMT to find the annual cash flow: $81,536.95.

These calculations rely on the time value of money principles and the BA II Plus' ability to solve for present value, payment, or future value in annuity scenarios.

The financial calculator streamlines these complex calculations, making it a valuable tool for financial planning and analysis.