2. Mr. and Mrs. Rich are interested in purchasing anannuity that will pay them $2,500.00 per month startingnext month for 25 years. If the best rate of return thatthey could get is 4.65% compounded semi-annually,calculate using both the algebraic and the calculatormethod,a) how much should they pay now for this annuity?P/YC/YI/YPVPMTFVb) Calculate the total interest paid over the term of theannuity.P/YC/YNI/YPVPMTFV

Present value of annuity would give the price of annuity to be paid.

rs. Rich purchasing annuity that will pay them $2,500.00 per month starti ext month for 25 years. If the best rate of return that hey could get is 4.65% compounded semi-annually, alculate using both the algebraic and the calculator nethod, ) how much should they pay now for this annuity?

rs. Rich purchasing annuity that will pay them $2,500.00 per month starti ext month for 25 years. If the best rate of return that hey could get is 4.65% compounded semi-annually, alculate using both the algebraic and the calculator nethod, ) how much should they pay now for this annuity?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

2. Mr. and Mrs. Rich are interested in purchasing an
annuity that will pay them $2,500.00 per month starting
next month for 25 years. If the best rate of return that
they could get is 4.65% compounded semi-annually,
calculate using both the algebraic and the calculator
method,
a) how much should they pay now for this annuity?
P/Y
C/Y
I/Y
PV
PMT
FV
b) Calculate the total interest paid over the term of the
annuity.
P/Y
C/Y
N
I/Y
PV
PMT
FV

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