QuestionJuly 11, 2025

Your investment advisor wants you to purchase an annuity that will pay you 25,000 per year for 10 years. You require a 7% return. The present value annuity factor at 7% for 10 years is 7.0236. What is the most you should pay for this investment? a) 201,000 b) 49,179 C) 250,000 d) 225,682 e) 175,590

Your investment advisor wants you to purchase an annuity that will pay you 25,000 per year for 10 years. You require a 7% return. The present value annuity factor at 7% for 10 years is 7.0236. What is the most you should pay for this investment? a) 201,000 b) 49,179 C) 250,000 d) 225,682 e) 175,590
Your investment advisor wants you to purchase an annuity that will pay you
 25,000
per year for 10 years. You require
a 7% 
return. The present value annuity factor at
7% 
for 10 years is 7.0236. What is the most you should pay for this
investment?
a) 201,000
b) 49,179
C) 250,000
d) 225,682
e) 175,590

Solution
4.0(266 votes)

Answer

\175,590 Explanation 1. Identify the Present Value Formula The present value of an annuity is calculated using the formula: **PV = PMT \times PVIFA**, where PV is the present value, PMT is the annual payment, and PVIFA is the present value interest factor of annuity. 2. Substitute Values into the Formula Given PMT = \25,000 and PVIFA = 7.0236, substitute these values into the formula: **PV = 25000 \times 7.0236**. 3. Calculate the Present Value Perform the multiplication: **PV = 25000 \times 7.0236 = 175,590**.

Explanation

1. Identify the Present Value Formula<br /> The present value of an annuity is calculated using the formula: **PV = PMT \times PVIFA**, where PV is the present value, PMT is the annual payment, and PVIFA is the present value interest factor of annuity.<br /><br />2. Substitute Values into the Formula<br /> Given PMT = \$25,000 and PVIFA = 7.0236, substitute these values into the formula: **PV = 25000 \times 7.0236**.<br /><br />3. Calculate the Present Value<br /> Perform the multiplication: **PV = 25000 \times 7.0236 = 175,590**.
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