Your uncle is about to retire, and he wants to buy an annuity that will provide him with $5,300 of income a year for 30 years, with the first payment coming immediately.  The going rate on such annuities is 5.25%.  How much would it cost him to buy the annuity today?Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.A. $85,028.03B. $83,360.81C. $96,698.54D. $95,031.33E. $70,856.69

Question
Asked Sep 22, 2019
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Your uncle is about to retire, and he wants to buy an annuity that will provide him with $5,300 of income a year for 30 years, with the first payment coming immediately.  The going rate on such annuities is 5.25%.  How much would it cost him to buy the annuity today?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
A. $85,028.03
B. $83,360.81
C. $96,698.54
D. $95,031.33
E. $70,856.69
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Expert Answer

Step 1

The today’s cost can be calculated using the PV function of excel. Inputs of the PV function will be:

Period = 30 years

PMT = Payment per period = Income = -5300

Rate = 0.0525

FV = Future value = 0

Step 2

PV is calculated ...

?
Function Arguments
PV
Rate
0.0525
=0.0525
= 30
Прer 30
Pmt -5300
= -5300
0
Fv
= 0
Туре 1
1
=83360.81327
Returns the present value of an investment: the total amount that a series of future payments is worth now.
Pmt is the payment made each period and cannot change over the life of the investment.
Formula result 83,360.81
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? Function Arguments PV Rate 0.0525 =0.0525 = 30 Прer 30 Pmt -5300 = -5300 0 Fv = 0 Туре 1 1 =83360.81327 Returns the present value of an investment: the total amount that a series of future payments is worth now. Pmt is the payment made each period and cannot change over the life of the investment. Formula result 83,360.81 Cancel Help on this function Ок

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