Annuities and interest rates?
An annutiy consists of 20 annual payments of 85,000.
Interest rates from 5.5% to 7.5% be used, and i enjoy to find the prices payable in the 2 years to safe and sound this annuity.
I notice that the high the interest rates, the lower the price payable.
Can anyone write a brief report as to why this happen?
Answers:
Compounded interest. Think of it the other instrument. Instead of the climax extent you are at the birth time. You deposit $1,000 contained by 2 seperate investments. One pays 5.5% and the other 7.5%. Which one will you hold more money within after 2 years. The 7.5% investment, as expected. Reverse the direction immediately and start beside like peas in a pod amount at the stop. Which one do you hold to put more money contained by to bring back one and the same amount at the finishing. the 5.5% investment, as you would expect, because you earn smaller numberagainst your money and hence must start out beside more money. Hope that help.
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Interest rates from 5.5% to 7.5% be used, and i enjoy to find the prices payable in the 2 years to safe and sound this annuity.
I notice that the high the interest rates, the lower the price payable.
Can anyone write a brief report as to why this happen?
Answers:
Compounded interest. Think of it the other instrument. Instead of the climax extent you are at the birth time. You deposit $1,000 contained by 2 seperate investments. One pays 5.5% and the other 7.5%. Which one will you hold more money within after 2 years. The 7.5% investment, as expected. Reverse the direction immediately and start beside like peas in a pod amount at the stop. Which one do you hold to put more money contained by to bring back one and the same amount at the finishing. the 5.5% investment, as you would expect, because you earn smaller numberagainst your money and hence must start out beside more money. Hope that help.