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Calculating the Rate of Return for Annuities

Your insurance agent is trying to sell you an annuity that costs $230,000 today. By buying this annuity, your agent promises that you will receive payments of $1,225 a month for the next 30 years. What is the rate of return on this investment?

Solution Preview

230,000 = 1,225 * (1- [1/30*12/ (1+r/12) / r/12
30 * 12 / 12 - 230,000 = 1,225
Calculator function = PMT FV 1,225 = 4.93%.

We must use a combination of ...

Solution Summary

This solution calculates the rate of return on the investment.

$2.19