A new investment opportunity for you is an annuity that pays $550 at the END of each year for 3 years. You could earn a rate of return of 5.5% per year on your money in other, similar investments. What is the most you should pay for the annuity? Express your answer in dollars and cents.

A new investment opportunity for you is an annuity that pays $550 at the END of each year for 3 years. You could earn a rate of return of 5.5% per year on your money in other, similar investments. What is the most you should pay for the annuity? Express your answer in dollars and cents.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Express your answer in dollars and cents.

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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