Determine the Current Economic Value of a 25-Year Annuity Providing

question 126

Multiple Choice

Determine the current economic value of a 25-year annuity providing $10,000 per year for the first 10 years, $15,000 for the next 10 years and $25,000 for the last 5 years, given an interest rate of 6.3% compounded annually.

• A) $159,025.85
• B) $160,980.01
• C) $162,432.65
• D) $163,854.18
• E) $167,525.89

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Definitions:

Yield

The income returned on an investment, such as the interest or dividends received, typically expressed as a percentage of the investment’s cost or current market value.

Modified Duration

Modified Duration measures the sensitivity of the price of a bond or other debt instrument to a change in interest rates, indicating the percentage change in price for a parallel shift in rates.

Modified Duration

A measure of the sensitivity of a bond's or bond portfolio's price to changes in interest rates, adjusting for the changing yield to maturity.

Market Yield

The current yield of a bond or other fixed-income security, calculated by dividing the annual interest income by the current market price.