You are considering an annuity which costs $74,100 today. The annuity pays $6,00

Question

You are considering an annuity which costs $74,100 today. The annuity pays $6,000 a year. The rate of return is 5 percent. What is the length of the annuity time period? (Do not round intermediate calculations.)

a. 19.70 years

b.2.75 years

c.9.85 years

d.12.35 years

Your parents are giving you $310 a month for 5 years while you are in college. At a 8 percent discount rate, what are these payments worth to you when you first start college?

a.15,659.71

b.15,288.71

c.14,965.71

d.$14,610.00

e.$18,600.00

Explanation / Answer

Hi,

Please find the answer as follows;

Part 1:

Nper = ?

PMT = 6000

Rate = 5%

PV = -74100

FV = 0

Length = Nper(rate,pmt,pv,fv) = Nper(5%,6000,-74100,0) = 19.697 or 19.70 Years

Option A is correct.

Part 2:

PV = ?

PMT = 310

Nper = 5*12 = 60

PV = 0

Rate = 8%/12

Present Value = PV(rate,nper,pmt,pv) = PV(8%12,60,310,0) = 15288.71

Option B is correct.

Thanks.

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