Question

A couple of generations ago, a relative of John wanted to share her wealth with family members and decided to open a special bank account. The purpose of such financial instrument was to pay out an annuity forever, which would be shared among all family members. Given that the initial deposit was 401,935 dollars and the prevailing interest rate at that time was 5 %, compounded annually, find the value of the annuity this family collects every year. (note: round your answer to the nearest cent, and do not include spaces, currency signs, plus or minus signs, or commas)

Answer 1

Answer: 20097

Step-by-step explanation:

Based on the information provided, the value of the annuity this family collects every year will be calculated as:

Present value of annuity will be:

= Annual cash flow × Interest rate

= 401,935 × 5%

= 401935 × 5/100

= 401935 × 0.05

= 20096.75

= 20097

The annuity collected every year will be 20097.