Calculate the following:
A. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 25-year annuity is $1.9 million and the annuity earns a guaranteed annual return of 13 percent. The payments are to begin at the end of seven years. (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
Answer: year annuity is $1.9 million
Working notes for the above answer is as under
The annual cash flows are given by X:
$1,900,000 = X {[1 − (1/(1 + 0.13)^25)]/0.13},
therefore X=1,900,000/(7.32998498)
= $259,209.26
or you can use financial calculator,
where,
N = 25,
I = 13,
FV = 1,900,000,
then compute PMT
PMT = $259,209.26
