You bought an annuity selling at $11,635.16 today that promises to make equal payments at the beginning of each year for the next four years (N). If the annuity's appropriate interest rate (I) remains at 5.00% during this time, © 39 06. 25 D 3125. 0 A45 31.33 O6399.34 then the value of the annual annuity payment (PMT) is You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in four equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won -assuming annual interest rate of 5.00%.
You bought an annuity selling at $11,635.16 today that promises to make equal payments at the beginning of each year for the next four years (N). If the annuity's appropriate interest rate (I) remains at 5.00% during this time, © 39 06. 25 D 3125. 0 A45 31.33 O6399.34 then the value of the annual annuity payment (PMT) is You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in four equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won -assuming annual interest rate of 5.00%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Present Value of Annuities and Annuity Payments**
The present value of an annuity is the sum of the discounted value of all future cash flows.
You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate.
- An annuity that pays $1,000 at the end of each year
- An annuity that pays $500 at the beginning of every six months
- An annuity that pays $500 at the end of every six months
- **An annuity that pays $1,000 at the beginning of each year** (Chosen Option)
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You bought an annuity selling at $11,635.16 today that promises to make equal payments at the beginning of each year for the next four years (N). If the annuity's appropriate interest rate (I) remains at 5.00% during this time, then the value of the annual annuity payment (PMT) is __________.
- A) $4,531.25
- B) $3,906.25
- C) $3,975.00
- **D) $3,175.00** (Correct Option)
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You just won the lottery. Congratulations! The jackpot is $35,000,000, paid in four equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won _______—assuming an annual interest rate of 5.00%.
- **A) $37,713,593.75**
- B) $32,578,420.26
- C) $39,599,273.438
- D) $31,027,066.91
**Note**: Calculations involve determining the present value based on different types of annuity payments and understanding how the timing of these payments affects the overall present value calculation.
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