Assume That You Own an Annuity That Will Pay You

question 121

Multiple Choice

Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today.You need money today to open a new restaurant, and your uncle offers to give you $120,000 for the annuity.If you sell it, what rate of return would your uncle earn on his investment?

• A) 6.85%
• B) 7.21%
• C) 7.59%
• D) 7.99%
• E) 8.41%

---

Definitions:

Ordinary Income

Income earned from conducting standard business operations, as opposed to capital gains or investment income.

Straight Line

In finance, often refers to a method of depreciation where an asset's value decreases evenly over its useful life.

Depreciated

The reduction in an asset's worth over a period, frequently as a result of usage or becoming outdated.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a particular point in time, providing insight into its financial health.