4 Chris Seals has just given an insurance company $61,525. In return, she will receive an annuity of $6,951 for 16 years. a. At what rate of return must the insurance company invest this $61,525 to make the annual payments? (Use a Financial calculator to arrive at the answers. Round the final answer to 3 decimal places.) Rate of return % b. What rate of return is required if the annuity is payable at the beginning of each year? (Use a Financial calculator to arrive at the answers. Round the final answer to 2 decimal places.) Rate of return %
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The present value of an annuity formula is: \[ PV = Pmt \times \left( \frac{1 - (1 + r)^{-n}}{r} \right) \] Where: PV = present value of the annuity ($61,525) Pmt = annual payment ($10,000) r = rate of return n = number of periods (6 years) Show more…
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