Interest rate for an annuity April Bartrick has just received an inheritance of $1,000,000. She plans to invest the entire sum in an annuity, paying at the end of each year for the next 20 years. Two personal bankers suggest different long-term, fixed income instruments that she can invest in. However, the annual payment from the first investment is $94,393 and $117,459 from second investment.
a. What is the rate of return offered by the two investments (rounded off to the nearest whole percent)?
b. April is willing to settle for an annuity that carries an interest rate assumption of 9% per annum. What minimum annual payment would be acceptable for her?
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