Your father is about to retire, and he wants to buy an annuitythat will provide

Question

Your father is about to retire, and he wants to buy an annuitythat will provide him with $50,000 of income per year for 20 years,beginning a year from today. The going rate on such annuitiesis 6%. How much would it cost him to buy such an annuitytoday Your father is about to retire, and he wants to buy an annuitythat will provide him with $50,000 of income per year for 20 years,beginning a year from today. The going rate on such annuitiesis 6%. How much would it cost him to buy such an annuitytoday

Explanation / Answer

Income per year = $ 50000

Life = 20 years

Rate = 6%

PVCAF 20years 6% = 11.4699

Cost of the bond:-

Present value of bond = Income * PVCAF 20years6%

                                   = $50000*11.4699

                                   = $573495

(Note: PVCAF = Present Value Cumulative Annuity Factor)

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