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Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Ryan inherited an annuity worth $3,280.16 from his uncle. The annuity will pay him five equal payments of $800 at the end of each year. The annuity fund is offering a return of

Answer :

JEPESSOAGO

Answer:

7%

Explanation:

present value of an annuity = annual payment x PV annuity factor

PV annuity factor = $3,280.16 / $800 = 4.1002

using an annuity table, given 5 periods and the factor value, the i = 7%

you could also calculate it by solving:

4.1002 = [1 - 1/(1 + i)ⁿ ] / i

but it is much longer and difficult than just looking at a table

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