Question

If you put up $25,000 today in exchange for a 8.50 percent, 19-year annuity, what will the annual cash flow be

Answer 1

The right solution is "$2697.54".

Step-by-step explanation:

Given:

Interest rate,

r = 8.50%

or,

= 0.085

Number of periods,

n = 19

Present value,

= $25,000

As we know,

⇒
`Present \ value=C* ([1-(1+5)^(-n)])/(r)`

By substituting the values, we get

⇒
`25000=C* ([1-(1+0.085)^(-19)])/(0.085)`

⇒
`2125=C* [1-0.21224378136]`

⇒
`2125=C* 0.787756219`

⇒
`C=(2125)/(0.787756219)`

⇒
`=2697.54` ($)