Your Friend Offers to Pay You an Annuity of $2,500

question 154

Multiple Choice

Your friend offers to pay you an annuity of $2,500 at the end of each year for 3 years in return for cash today.You could earn 5.5% on your money in other investments with equal risk.What is the most you should pay for the annuity?

• A) $5,493.71
• B) $5,782.85
• C) $6,087.21
• D) $6,407.59
• E) $6,744.83

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Definitions:

Self-Contained

Referring to a system or entity that has all necessary components within itself to function independently.

Cash Management System

A framework used by companies and individuals to manage, monitor, and control their cash flow and liquidity efficiently.

Disbursement Float

The time delay between when a check is written and the funds are actually deducted from the payer's account.

Collections Float

The time gap between when a check is deposited in a bank and when the funds become available, affecting the cash flow of the business.