You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be…

The correct answer is B. $39,272. See the full explanation below for the reasoning.

Investment Management

Question

You want to buy an ordinary annuity that will pay you $4,000 a year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. The maximum price you would be willing to pay for the annuity is closest to:

Options

A$32,000
B$39,272
C$40,000
D$80,000

How the community answered

(26 responses)

A
8% (2)
B
73% (19)
C
4% (1)
D
15% (4)

Topics

#present value#ordinary annuity#discount rate#time value of money

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