An annuity offers $1,000 for 10 years. If you can earn 12 percent annually on your funds, what is the maximum amount you should pay for this annuity??
What will be an ideal response?
This problem is similar to #21 but is applied to an individual's investment. The present value of the annuity is PVA = $1,000(5.650) = $5,650.?5.650 is the interest factor for the present value of an ordinary annuity at 12 percent for 10 years. The investor should pay no more than $5,650 for this investment. (PMT = 1000; N = 10; FV = 0; I = 12; PV = ? PV = -5650.22.)
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