You Own an Ordinary Annuity Contract That Will Pay You

question 47

Multiple Choice

You own an ordinary annuity contract that will pay you $3,000 per year for 12 years.You need money to pay back a loan in 6 years,and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan.You decide to sell your annuity for a lump sum of cash to be paid to you five years from today.If the interest rate is 8%,what is the equivalent value of your 12-year annuity if paid in one lump sum five years from today?

• A)$22,008
• B)$18,000
• C)$35,876
• D)$38,880

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Definitions:

Monthly Consumption

The total amount of goods and services that consumers purchase and use within a month.

Monthly Income

The total earnings received by an individual or entity on a monthly basis, from sources such as employment, investments, and other income.

Income Elasticity of Demand

Indicates how the quantity demanded of a good changes in response to a change in consumers' income.

Monthly Income

The total amount of earnings received every month from work, investments, benefits, and other sources.