Answer to Question #201522 in Economics for Mohammad Shehroz a

Question

3. Your insurance company offered you an annuity that pays you $100 at the end of each year. The life of the annuity is 10 years. Assume that market interest rate you can earn on similar risky investments is 8%. [Marks 6]

a. What should be the present value of this annuity?

b. If you are given the first payment immediately starting today, what should be the worth of this annuity?

c. Which payment mode will you accept? What will be basis of your decision under time value of money concept?

Answer 1

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