What is the relationship between the value of an annuity and discount rates? Suppose you bought a

Question:

What is the relationship between the value of an annuity and discount rates? Suppose you bought a 20-year annuity of $4,700 per year at the current discount rate of 10 percent per year. What happens to the value of your investment if the discount rate suddenly drops to 5 percent? What if the discount rate suddenly rises to 15 percent?

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,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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