Your insurance agent is trying to sell you an annuity that costs $200,000 today.

Question

Your insurance agent is trying to sell you an annuity that costs $200,000 today. By buying this annuity, your agent promises that you will receive payments of $1,225 a month for the next 30 years. What is the rate of return on this investment? 6.67 percent 5.97 percent 6.45 percent 6.20 percent 5.75 percent When I type the information into my calculator, I keep getting different results, how do I do this correctly?

Explanation / Answer

=> 200,000 = 1225/(1+r) + 1225/(1+r)^2+------+1225/(1+r)^360 here n=30*12 =360 we have to find r => 200000 = 1225/r*(1-1/(1+r)^n) => r=0.516% this we got is monthly rate annual rate = 0.516*12 =6.2%

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