If you put up $28,000 today in exchange for a 8.75 percent, 19-year annuity, what will the annual cash flow be? Multiple Choice O O о O $3,292.06 $1,473.68 $3,074.66 $6,805.29 $2,863.34
If you put up $28,000 today in exchange for a 8.75 percent, 19-year annuity, what will the annual cash flow be? Multiple Choice O O о O $3,292.06 $1,473.68 $3,074.66 $6,805.29 $2,863.34
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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![**Question:**
If you put up $28,000 today in exchange for a 8.75 percent, 19-year annuity, what will the annual cash flow be?
**Multiple Choice Options:**
- $3,292.06
- $1,473.68
- $3,074.66
- $6,805.29
- $2,863.34
**Explanation:**
To solve this problem, we need to calculate the annual cash flow of an annuity given the present value, interest rate, and period. The formula for the annual cash flow (PMT) of an annuity is:
\[ PMT = \frac{PV \times r}{1 - (1 + r)^{-n}} \]
Where:
- \( PV \) = Present Value ($28,000)
- \( r \) = Annual interest rate (8.75% or 0.0875)
- \( n \) = Number of periods (19 years)
Plugging in the values, you can find the correct option from the given choices.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0f20cc49-c768-43e6-a9c4-6f0d40e2f4fd%2Fcd82fc8b-c665-44d1-b5d4-90cd9f576250%2Fdv6vc9n_processed.png&w=3840&q=75)
Transcribed Image Text:**Question:**
If you put up $28,000 today in exchange for a 8.75 percent, 19-year annuity, what will the annual cash flow be?
**Multiple Choice Options:**
- $3,292.06
- $1,473.68
- $3,074.66
- $6,805.29
- $2,863.34
**Explanation:**
To solve this problem, we need to calculate the annual cash flow of an annuity given the present value, interest rate, and period. The formula for the annual cash flow (PMT) of an annuity is:
\[ PMT = \frac{PV \times r}{1 - (1 + r)^{-n}} \]
Where:
- \( PV \) = Present Value ($28,000)
- \( r \) = Annual interest rate (8.75% or 0.0875)
- \( n \) = Number of periods (19 years)
Plugging in the values, you can find the correct option from the given choices.
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