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After winning some money at a casino, Tony is considering purchasing an annuity that promises to...

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Finance

After winning some money at a casino, Tony is consideringpurchasing an annuity that promises to pay him $300 at the end ofeach month for 12 months, then $350 at the end of each month for 24months, and then $375 at the end of each month for 36 months. Ifthe first payment is due at the end of the first month and interestis 7.5% compounded annually over the life of the annuity, findTony’s purchase price.

Answer & Explanation Solved by verified expert
3.8 Ratings (328 Votes)
The timeline of cash flows is Months 1 to 12 300 Months 13 to 36 350 Months 37 to 72 375 The present value of the 1st series of cash flows is calculated using the PV function in Excel with these inputs rate 75 12 Converting annual rate into monthly rate nper 12 12 monthly payments pmt 300 monthly payment this is entered as a negative figure because in an    See Answer
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Transcribed Image Text

After winning some money at a casino, Tony is consideringpurchasing an annuity that promises to pay him $300 at the end ofeach month for 12 months, then $350 at the end of each month for 24months, and then $375 at the end of each month for 36 months. Ifthe first payment is due at the end of the first month and interestis 7.5% compounded annually over the life of the annuity, findTony’s purchase price.

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