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Rate of Return of an Annuity: Your Uncle's Offer

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Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle offers to give you $120,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment?

A. 6.85 %
B. 7.21%
C. 7.59 %
D. 7.99 %
E. 8.41 %.

Please show the calculation.

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Solution Summary

Your tutorial is attached in Excel showing your uncle's initial outlay and the returns he will earn.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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