(Rela heckpoint Present value of an ordinary annuity) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an woman who is ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her a fixed annual income. The annuities are as follows Purchase Price of the Annuity Annuity (At t=0) $40,000 B $60,000 C $60,000 (Click on the icon in order to copy its contents into a spreadsheet) Amount of Money Received Per Year $6,500 $9,000 $8,000 Duration of the Annuity (Years) 15 18 20 Nicki could earn 11 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a highe than investing in the savings account earning 11 percent? a. If Nicki could earn 11 percent on her money, what is the present value of annuity A with $6,500 payments per year and 15 years duration? (Round to the nearest cent.)
(Rela heckpoint Present value of an ordinary annuity) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an woman who is ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her a fixed annual income. The annuities are as follows Purchase Price of the Annuity Annuity (At t=0) $40,000 B $60,000 C $60,000 (Click on the icon in order to copy its contents into a spreadsheet) Amount of Money Received Per Year $6,500 $9,000 $8,000 Duration of the Annuity (Years) 15 18 20 Nicki could earn 11 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a highe than investing in the savings account earning 11 percent? a. If Nicki could earn 11 percent on her money, what is the present value of annuity A with $6,500 payments per year and 15 years duration? (Round to the nearest cent.)
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:(Related to Checkpoint 6.2) (Present value of an ordinary annuity) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an older
woman who is ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her a fixed annual income. The annuities are as follows:
Annuity
A
Purchase Price of the
Annuity (Att 0)
$40,000
B
$60,000
C
$60,000
(Click on the icon in order to copy its contents into a spreadsheet.)
Amount of Money
Received Per Year
$6,500
$9,000
$8,000
Duration of the
Annuity (Years)
15
18
20
Nicki could earn 11 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a higher return
than investing in the savings account earning 11 percent?
a. If Nicki could earn 11 percent on her money, what is the present value of annuity A with $6,500 payments per year and 15 years duration?
(Round to the nearest cent.)
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