1 answer

Your insurance agent is trying to sell you an annuity that costs $75,000 today. By buying...

Question:

Your insurance agent is trying to sell you an annuity that costs $75,000 today. By buying this annuity, your agent promises that you will receive payments of $500 per month for 20 years. What is the rate of return expressed as an APR on this investment?


Answers

The APR is calculated using RATE function in Excel :

nper = 20 * 12 (20 years of payments with 12 payments each year)

pmt = 500 (Monthly payment)

pv = -75000 (Amount paid to purchase annuity. This is entered with a negative sign because it is a cash outflow)

RATE is calculated to be 0.43%. This is the monthly rate. To get APR, we multiply by 12.

APR = 5.12%

.

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