How do we calculate an Internal Rate of return on an an Immediate Annuity?
Not an easy task, actually, because an immediate annuity has a return of principal component AND an interest component in the income you receive from it.
So, when you compare an annuity to say a bond, you need to know you are NOT comparing apples to apples when it comes to distribution yields.
But, when it comes to income received and the opportunity cost of tying up capital to generate that income we can get a pretty good idea of the value of income annuities.
This is what I show you here.
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