Answer to Question #183516 in Microeconomics for Saqib

Question

MR. jhon is offered an annuity plan for $250000 that will provide him $30000 annually at start of each year @8% p.a how long it will take him to get return?

Answer 1

$PV =\$250000$

$r=8$ %

$i=0.08$

$R=30000$

$250,000=30000[\frac{(1+0.08)^{-n}}{0.008}]$

$\frac{250,000\times0.08}{30,000}=1-(1+1.008)^{-n}$

$0.67=1-1.008^{-n}$

$1.008^{-n}=0.33$

$-n=\frac{log \ 0.33}{log\ 1.08}$

$-n=-14.41\\ n=14.41$

$n=14.4$