Solution-Calculate annual rate of return on each of four

Calculate annual rate of return on each of four annuities

Reference no: EM133176017

Question - Dimity Glasshouse is a retired nurse and wishes to choose the best of four immediate retirement annuities available to her. In each case, in exchange for paying a premium today N (i.e., some single amount today), she will receive equal annual end-of-year cash flows for a specified number of years. She considers the annuities to be equally risky and is not concerned about their differing lives. Her decision will be based solely on the rate of return she will earn on each annuity. The key terms of each of the four annuities are shown in the following table.

Annuity	Premium Paid Today	Annual Cash Flow	Life (years)
1	$30,000	$3,100	20
2	$25,000	3,900	10
3	$40,000	4,200	15
4	$35,000	4,000	12

Required -

1. Calculate the annual rate of return on each of the four annuities Dimity is considering.

2. Given Dimity's stated decision criterion, which annuity would you recommend and why?

Reference no: EM133176017

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Calculate annual rate of return on each of four annuities

Reference no: EM133176017

Reference no: EM133176017

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