Answer:
The annuity would cost him $1,082,988.93
Step-by-step explanation:
To find the answer, we use the present value of an annuity formula:
P = A [(1 - (1 + i)^-n )/ i ]
Where:
- P = Present value of the annuity (the value we are looking for)
- A = Value of the annuity payments ($78,000 in this case)
- i = interest rate (in this case 5.15% or 0.0515)
- n = number of compounding periods (in this case: 25 years)
Now, we plug the amounts into the formula and solve:
P = $78,000 [(1 - (1 + 0.0515)^-25)/0.0515]
P = $1,082,988.93