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Chapter 4: 4-9-35BP (page 284)

Question: Betty Bronson has just retired after 25 years with the electric company. Her total pension funds have an accumulated value of $180,000, and her life expectancy is 15 more years. Her pension fund manager assumes he can earn a 9 percent return on her assets. What will be her yearly annuity for the next 15 years?

Short Answer

Expert verified

Answer

The yearly annuity will be $22,330.60.

Step by step solution

01

Identification of the required information

Present value (PV) = $180,000

Periods (n) = 15

Interest rate (i) = 9%

02

Computation of the yearly annuity (PMT)

PV=PMT×[1-1+i-ni]$180,000=PMT×[1-(1+9%)-159%]PMT=$22,330.60

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Most popular questions from this chapter

Question: You will receive \(6,800 three years from now. The discount rate is 10 percent. d. Use the formula PV 5 FV 3 _____ 1 (1 1 i) n to find the present value of \)6,600 received three years from now at 10 percent interest.

Question: What is the present value of a 10-year annuity of $3,000 per period in which payments come at the beginning of each period? The interest rate is 12 percent.

Cal Lury owes $10,000 now. A lender will carry the debt for five more years at 10 percent interest. That is, in this particular case, the amount owed will go up by10 percent per year for five years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be?

What is a deferred annuity?

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