Garrett has many annuity that pays $2,460 at the beginning of each year. If the economy grows at a rate of 2.35% semiannually, what is the value of the annuity if he received it in a lump sum now rather than over a period of nine years?

Question

Nigel Duffy

Mathematics

24 November, 10:27

Garrett has many annuity that pays $2,460 at the beginning of each year. If the economy grows at a rate of 2.35% semiannually, what is the value of the annuity if he received it in a lump sum now rather than over a period of nine years?

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Courtney Mcknight · Answer 1

FV value of the amount using future value annuity will be:

FV=P[ (1+r) ^n-1]/r

FV=2460[ (1+0.01175) ^18-1] / (0.01175)

FV=48,992.23

The present value of this amount will be:

PV=pe^ (-rt)

PV=48992.23e^ (-0.0235*9)

PV=39,652.81