An investor wants to purchase a level annuity of £82 per annum payable monthly in arrear for 8 years

Finance Dec 25, 2020

An investor wants to purchase a level annuity of £82 per annum payable monthly in arrear for 8 years. Find the purchase price in £, given that it is calculated on the basis of an interest rate of 2.7 % per annum convertible quarterly.

Expert Solution

Purchase price = annual annuity amount × ((1+i)^n -1)/i(p)

Purchase price= 82 × ((1+i)^8 -1)/i(12)

i = (1+i(p)/p)^p - 1

= (1+0.027/4)^4 - 1 = 0.02727460726

i(12) = 12((1+i)^(1/12) - 1)

= 0.02693947679

Purchase price = 82 × ((1+0.02727460726)^8 - 1)/0.02693947679

= 82 × 8.91635702184

= 731.14127579093

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote