Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. consider an annuity with a term of 10 years, and a

Consider an annuity with a term of 10 years, and an annual payment of $12,000...

60.1K

Verified Solution

Question

Accounting

image

Consider an annuity with a term of 10 years, and an annual payment of $12,000 in the year 2021. Use an annual effective interest rate of 3%. (This is an effective rate, not a nominal rate.) Calculate the present value of the annuity as of 1/1/2021 in parts (a), (b), and (c). (a) The payments are level. The entire annual amount of $12,000 is paid at the beginning of each year, with the first payment on 1/1/2021. (b) The payments are level. The annual amount of $12,000 is divided into 12 monthly payments, and each monthly payment of $1,000 is paid at the beginning of each month, with the first payment on 1/1/2021. (c) The annuity contract has an annual 2% inflation rider. The annual amount of $12,000 is paid on 1/1/2021, and payments will be made on 1/1 every year thereafter, with each annual amount 2% more than the annual amount of the previous year. Thus, the payment on 1/1/2022 is $12,000 * (1 + 2%), the payment on 1/1/2023 is $12,000 * (1 + 2%)', etc. (Hint: Form a geometric series.)

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students