County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the

Question:

County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the end of each year for twenty-five years. The company has a strong investment record and can consistently earn 7% on its investments after taxes. If the company wants to make 1% on this contract, what price should it set on it? Use 6% as the discount rate. Assume that it is an ordinary annuity and that the price is the same as present value.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...