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Your insurance agent is trying to sell you an annuity that costs $230,000 today
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 586.111
month for the next 30 years. What is the monthly rate of return on this investment?
A. .375 percent
B. .411 percent
C. .493 percent
D.545 percent
Expert Solution
Computation of Monthly Rate of Return using Rate Function in Excel:
=rate(nper,pmt,-pv,fv)
Here,
Rate = Monthly Rate of Return = ?
Nper = 30 years*12 months = 360 months
PMT = $1225
PV = $230,000
FV = 0
Substituting the values in formula:
=rate(360,1225,-230000,0)
Rate or Monthly Rate of Return = 0.411%
So, the correct option is B "0.411%".
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