Question

If you put up $35,000 today in exchange for a 6.75 percent, 14-year annuity, what will the annual cash flow be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

To calculate the annual cash flow of a 6.75 percent, 14-year annuity, use the present value of an annuity formula. The annual cash flow for a $35,000, 6.75 percent, 14-year annuity would be $4587.73.

Step-by-step explanation:

To calculate the annual cash flow of a 6.75 percent, 14-year annuity, we can use the present value of an annuity formula.

The present value formula for an annuity is:

Annual Cash Flow = Principal / Present Value Factor

The present value factor can be calculated using the formula:

Present Value Factor = (1 - (1 + interest rate) ^ -n) / interest rate

Plugging in the values from the question:

Principal = $35,000
Interest Rate = 0.0675 (6.75% as a decimal)
n = 14

Using these values, we can calculate the present value factor, and then divide the principal by the present value factor to find the annual cash flow.

Calculations:
Present Value Factor = (1 - (1 + 0.0675) ^ -14) / 0.0675 = 7.616768
Annual Cash Flow = 35000 / 7.616768 = $4587.73

Therefore, the annual cash flow for a $35,000, 6.75 percent, 14-year annuity would be $4587.73.