(Annuity interest rate) Your folks just called and would like some advice from you

Finance Aug 07, 2020

(Annuity interest rate) Your folks just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $13,420.48 that will pay them $2,500 per year for 10 years. They don't have the slightest idea what return they would be making on their investment of $13,420.48. What rate of return would they be earning?
The annual rate of return your folks would be earning on their investment is %. (Round to two decimal places.)

Expert Solution

We can calculate the annual rate of return by using the following formula in excel:-

=rate(nper,pmt,-pv,fv)

Here,

Rate = Annual rate of return

Nper = 10 periods

Pmt = $2,500

PV = $13,420.48

FV = $0

Substituting the values in formula:

= rate(10,2500,-13420.48,0)

= 13.27%

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