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Choosing an annuity

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You have been offered two annuities for the same price. Annuity 1 pays $50,000 per year at the end of the year for 10 years. Annuity 2 pays $40,000 per year at the end of the year for 20 years. If your cost of capital is 10%, which of these two annuities is a better deal, why?

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Solution Preview

Here we will calcuate the Present value of annuity under both the situations:

Annuity 1 pays $50,000 per year at the end of the year for 10 ...

Solution Summary

The response helps in providing steps of choosing an annuity.

$2.19