Question

Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 15-year annuity is $750,000 and the annuity earns a guaranteed annual return of 6.85 percent. The payments are to begin at the end of the current year.

Answer 1

$81,567.52

Step-by-step explanation:

in order to determine the annuity payment we can use the following formula:

present value of the annuity = payment x annuity factor (6.85%. n = 15)

the annuity factor = [1 - 1/(1 + r)ⁿ] / r = [1 - 1/(1 + 0.0685)¹⁵] / 0.0685 = 9.194836402

$750,000 = annuity payment x 9.194836402

annuity payment = $750,000 / 9.194836402 = $81,567.52