Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of...
Question:
Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $70,000 at age 65, the firm will pay the retiring professor $500 a month until death. If the professor's remaining life expectancy is 20 years, what is the (implied) APR on this annuity? What's the implied EAR? Please show work/calculations.
Annualized Percentage Rate and Effective Annual Rate:
Annualized Percentage Rate(APR) and Effective Annual Rate(EAR) both are stated on yearly basis with the main difference is that the APR is annualized by multiplying the number of periods in a year while EAR takes compounding into consideration and hence EAR is the better estimate of the returns.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answera. APR on this annuity is 6%
b. The implied EAR is 6.17%
- Present Value, PV = $70,000
- Monthly payment, A = $500
- Number of payments in 20 years, n =...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Effective Annual Rate: Formula & Calculations
from
Chapter 7 / Lesson 6
20K
Know the definition of the effective annual rate (EAR), see the formula for calculating the effective annual rate, and explore some examples on how to calculate the effective annual rate.
Related to this Question
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $79,000 at age 65, the firm will pay the retiring professor $575 a month until death. a. If the professor'
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $72,000 at age 65, the firm will pay the retiring professor $400 a month until death. a. If the professor's
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $78,000 at age 65, the firm will pay the retiring professor $550 a month until death. a. If the professor
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $71,000 at age 65, the firm will pay the retiring professor $375 a month until death. a. If the professor'
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $87,000 at age 65, the firm will pay the retiring professor $775 a month until death. a. If the professor'
- Professor's Annuity Corporation offers a lifetime annuity to retiring professors. For a payment of $82,000 at age 65, the firm will pay the retiring professor $650 a month until death. a. If the profe
- Professor's Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $70,000 ("present value") at age 65, the firm will pay the retiring professor $500 a month until death. If
- Professor Annuity Corporation offers a life time annuity to retiring professor for a payment of $80,000. At age of 65 the firm will pay the retiring professor $600 a month until death. If the professo
- Prof. Business wants a 23-year retirement annuity that begins 13 years from today with an equal annual payment equal to $90,000 today inflated at 2.5% annually over 13 years. Her first retirement annu
- Your father is about to retire. His firm has given him the option of retiring with a lump sum of $20,000 or an annuity of $2,500 for 10 years. Which is worth more now, if an interest rate of 6 percent is used for the annuity?
- Your father is about to retire, and he wants to buy an annuity that will provide him with $84,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annui
- Because your father is about to retire, he wants to buy an annuity that will provide him with $75,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such a
- Your father is about to retire. His firm has given him the option of retiring with a lump sum of $50,000 or an annuity of $8,000 for ten years. Which is worth more now, if the discount rate is (a) 6%, (b) 18%?
- Your father is about to retire and he wants to buy an annuity that will provide him with $85,000 of income for 20 years with the first payment coming immediately. The going rate is 5.15%. How much wou
- Your mother is planning to retire this year. Her firm has offered her a lump-sum retirement payment of $50,000 or a $6,000 lifetime annuity whichever she chooses. Your mother is in reasonably good health and expects to live for at least 15 more years. Whi
- Your mother is planning to retire this year. Her firm has offered her a lump-sum retirement payment of $50,000 or a $6,000 lifetime annuity whichever she chooses. Your mother is in reasonably good hea
- You wish to convert your $2 million to a lifetime annuity which will provide you with a monthly payment for the rest of your life. You wish this payment to being one month after you fund your annuity. Annuity products are paying interest at 3% per year. W
- __________ is an annuity that provides its holder with payment dollars at the beginning of each year. a) An annuity due b) A warrant c) A perpetuity d) An ordinary annuity
- Your father is about to retire, and he wants to buy an annuity that will provide him with $58,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost him to buy the an
- When the purchaser dies, the contract terminates and the estate annuity contract or beneficiaries do not receive a refund. a. Single premium annuity b. Immediate annuity c. Installment premium annuity contract d. Survivorship benefit e. Deferred annuity f
- Suppose your employer offers a monthly annuity at 7.3% annual interest. a. If you can afford to put $800 per month into your annuity, and you wish to retire in 23 years, then how much will your annuity be worth when you retire? b. Suppose instead that y
- A college professor retires with $1,500,000. How much can he withdraw yearly for the next 30 years if the money is invested in a stock portfolio that is paying 12% per year?
- A college professor retires with $1,500,000. How much can he withdraw yearly for the next 25 years if the money is invested in a stock portfolio that is paying 12% per year?
- A college professor retires with $1,500,000. How much can he withdraw yearly for the next 20 years if the money is invested in a stock portfolio that is paying 12% per year?
- Your father is about to retire, and he wants to buy an annuity that will provide him with $91,000 of income a year for 25 years, with the first payment coming immediately. The going rate on such annuities is 5.15%. How much would it cost him to buy the an
- Because your mother is about to retire, she wants to buy an annuity that will provide her with $75,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such
- Your pension plan is an annuity with a guaranteed return of 4% per year (compounded quarterly). You can afford to put $1,800 per quarter into the fund, and you will work for 40 years before retiring.
- 1) Ean inherited an annuity worth $3,643.34 from his uncle. The annuity will pay him four equal payments of $1,100 at the end of each year. What rate of return is the annuity fund offering? a) 9.44%
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $781 per quarter for 24 years. You want to earn a minimum rate of return of 7.62 percent APR. What is the most you are willing to pay as a lump sum today to buy this annuity?
- A(n) __________ __________ is an annuity with payments made at the end of each period. a. Annuity certain b. Term annuity c. Annuity due d. Annual annuity e. none of the above
- Professor Brain is going to work for the next 25 years and then retire. At the end of the 25th year, he would like to withdraw $80,000 per year from an investment account until the end of the 50th year (26 withdrawals). At the end of the 51st year, he wou
- You wish to retire in 13 years, at which time you want to have accumulated enough money to receive an annual annuity of $23,000 for 18 years after retirement. During the period before retirement, you can earn 9% annually, while after retirement you can ea
- An insurance agent is trying to sell you an immediate-retirement annuity, which for a single amount paid today will provide you with $7,200 at the end of each year for the next 35 years. You currently
- Your uncle is about to retire, and he wants to buy an annuity that will provide him with $10,000 of income a year for 30 years, with the first payment coming immediately. The going rate on such annuit
- You are 21 today want to retire at age 60. Starting with the date of your retirement, you would like to have a growing annuity ($15,000 payment on the day of your retirement and growing by 3% each year thereafter) for 25 years. You will inherit $10,000 f
- You wish to retire in 13 years, at which time you want to have accumulated enough money to receive an annual annuity of $23,000 for 18 years after retirement. During the period before retirement, you can earn 9 percent annually, while after retirement you
- An insurance company is trying to sell you a retirement annuity. The annuity will give you 20 payments with the first payment in 12 years when you retire. The insurance firm is asking you to pay $50,000 today. If this is a fair deal, what must the payment
- Raul Inherited an annuity worth $7,046.13 from his uncle. The annuity will pay him seven equal payments of $1,400 at the end of each year. What rate of return is the annuity fund offering?
- When I retire in 30 years. I want to be able to endow a scholarship fund that pays DePaul $1,000,000 a year forever (starting the year after I retire). I want to set up a savings plan so that I save an amount each of the next 30 years (an annuity) to have
- You wish to retire in 10 years, at which time you want to have accumulated enough money to receive an annual annuity of $13,000 for 15 years after retirement. During the period before retirement you c
- You wish to retire in 25 years, at which time you want to have accumulated enough money to receive an annual annuity of $29,000 for 30 years after retirement. During the period before retirement you c
- You wish to retire in 10 years, at which time you want to have accumulated enough money to receive an annual annuity of $25,000 for 15 years after retirement. During the period before retirement you c
- You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $19,000 for 25 years after retirement. During the period before retirement you c
- You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $30,000 for 25 years after retirement. During the period before retirement you c
- You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $32,000 for 25 years after retirement. During the period before retirement you c
- Meg's pension plan is an annuity with a guaranteed return of 7% interest per year (compounded annually). She would like to retire with a pension of $30000 per annum for 15 years. If she works 31 years before retiring, how much money must she and her emplo
- Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much should Charlie invest today
- James inherited an annuity worth $2,493.10 from his uncle. The annuity will pay him three equal payments of $950 at the end of each year. What rate of return is the annuity fund offering? a.) 8.26%
- Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an in
- When I retire in May at the age of 69 years and 4 months. I want to have $4,020 in income per month in addition to my Social Security. Based on my average expected lifetime of 89.5 years, how much would have to be invested in a life income annuity earning
- "Dear Financial Adviser, My spouse and I are each 62 and hope to retire in three years. After retirement, we will receive $7,500 per month after taxes from our employers' pension plans and $1,500 per month after taxes from Social Security. Unfortunately,
- Your uncle is about to retire, and he wants to buy an annuity that will provide him with $80,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. Required: How much would it cost him to b
- Your uncle is about to retire, and he wants to buy an annuity that will provide him with $75,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost him to buy the ann
- Your insurance agent is trying to sell you an annuity that costs $230,000 today. By buying this annuity, your agent promises that you will receive payments of $1,225 a month for the next 30 years. Wha
- Perpetuity: Your grandfather is retiring at the end of next year. He would like to ensure that his heirs receive payments of $10,000 a year forever, starting when he retires. If he can earn 6.5 perce
- Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $15,000 per month for 20 years, with the first payment received 30 years and 1
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $827 per quarter for 24 years. You want to earn a minimum rate of return of 9.92%APR. What is the most you are willing to pa
- You wish to retire in 14 years, at which time you want to have accumulated enough money to receive an annual annuity of $17,000 for 19 years after retirement. During the period before retirement, you
- Charlie wants to retire in 30 years, and he wants to have an annuity of $1,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment at the end of the 30th year. Using an interest rate of 10%, how much must Charlie inves
- This annuity allows the purchaser to receive monthly benefits immediately. a. Single premium annuity b. Immediate annuity c. Installment premium annuity contract d. Survivorship benefit e. Deferred annuity f. Pure life g. Life annuity, period certain h. A
- Dr. Fog E. Professor is retiring and wants to endow a chair of engineering economics at his university. It is expected that he will need to cover an annual cost of $100,000 forever. What lump sum must
- Atlas Insurance wants to sell you an annuity which will pay you $600 per quarter for 25 years. You want to earn a minimum rate of return of 5.0%. What is the most you are willing to pay as a lump sum today to buy this annuity? a) $29,735.24 b) $30,319.28
- Your uncle is about to retire, and he wants to buy an annuity that will provide him with $60,000 of income a year for 20 years, with the first payment coming immediately. The going rate on such annuities is 5.75%. How much would it cost him to buy the ann
- An insurance agent is trying to sell you an immediate-retirement annuity which, for a single amount paid today, will provide you with $17,400 at the end of each year for the next 15 years. You current
- Annuity X promises to pay you $2,000 a year for 25 years in exchange for $19,000 today. Annuity Y has the same riskiness, and thus the same discount rate, as Annuity X, and promises to pay you $5,387
- The State of Texas has a pension fund liability of $25 million, due in 10 years. Each year the legislature is supposed to set aside an annuity to arrive at this future value. This annuity is based on
- Matt inherited as a trust a fifteen-year annuity with annual payments. He has been told that the annuity payments earn compound interest at a fixed rate and that, at the end of fifteen years, their ac
- Meg's pension plan is an annuity with a guaranteed return of 5% per year (compounded quarterly). She would like to retire with a pension of $20,000 per quarter for 5 years. If she works 17 years befor
- Atlas Insurance wants to sell you an annuity which will pay you $550 per quarter for 30 years. You want to earn a minimum rate of return of 5.0 percent compounded quarterly. What is the most you are willing to pay as a lump sum today to buy this annuity?
- An annuity that begins more than 1 year in the future is referred to as a(n): a. perpetuity b. annuity due c. uneven annuity d. deferred annuity
- Your grandmother bought an annuity from Rock Solid Life Insurance for $360,000 when she retired. In exchange for $360,000, Rock solid will pay her $50,000 per year until she dies. The interest rate is
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $680 per quarter for 20 years. You want to earn a minimum rate of return of 5.3 percent. What is the most you are willing to
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $670 per quarter for 25 years. You want to earn a minimum rate of return of 5.2 percent. What is the most you are willing to
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $710 per quarter for 20 years. You want to earn a minimum rate of return of 5.6 percent. What is the most you are willing to
- A man is planning to retire in 20 years. He wishes to deposit a regular amount every three months until he retires, so that, beginning one year following his retirement, he will receive annual payment
- When planning the retirement payout, there are several options from which to choose. With the (blank) option the annuity provides payments over the life of both you and your spouse. (a) lump sum annui
- Your grandfather is retiring at the end of next year. He would like to ensure that his heirs receive payments of $11,600 a year forever, starting when he retires. If he can earn 7.6 percent annually, how much does your grandfather need to invest to produc
- This type of annuity pays a set amount of monthly income for a specified number of years for the insured and beneficiaries. a. Single premium annuity b. Immediate annuity c. Installment premium annuity contract d. Survivorship benefit e. Deferred annuity
- Derek wishes to retire in 15 years, at which time he wants to have accumulated enough money to receive an annual annuity of $31,000 for 20 years after retirement. During the period before retirement,
- An insurance agent is trying to sell you an immediate retirement annuity, which for a single payment paid today, will provide you with $10,800 at the end of each year for 15 years. You currently earn 7% on a low-risk investment. Ignoring taxes, what is th
- Gramps purchased a joint survivor annuity that pays $1,600 monthly over his remaining life and that of his wife, Gram. Gramps is 70 years old and Gram is 65 years old. Gramps paid S$332,640 for the contract. How much income will Gramps recognize on the fi
- A 65-year-old man is retiring and can take either $500,000 in cash or an ordinary annuity that promises to pay him $50,000 per year as long as he lives. Which of the following statements is most corre
- An investor wishes to set up a retirement annuity by making semiannual deposits into an account which offers an annual stated rate of 12% per year compounded semiannually. The first of these semiannua
- The Good Life Insurance Co. wants to sell you an annuity which will pay you $640 per quarter for 25 years. You want to earn a minimum rate of return of 4.9 per cent. What is the most you are willing
- A pleasant gentleman has advised you via email that you are entitled to a $1 million inheritance. Putting specifics aside, you start to ponder the retirement nest-egg this could help you accumulate over the next 30 years. As a diligent finance student, yo
- Your grandmother bought an annuity from Rock Solid Life Insurance Company for $260,000 when she retired. In exchange for the $260,000?, Rock Solid will pay her $30,000 per year until she dies. The interest rate is 4%. How long must she live after the day
- Your grandmother bought an annuity from Rock Solid Life Insurance Company for $200,000 when she retired. In exchange for the $200,000, Rock Solid will pay her $25,000 per year until she dies. The interest rate is 5%. How long must she live after the day s
- Mr. Tomas wants to buy an annuity of $1,000 a year for ten years that is protected against inflation. The ABC Trust Company offers to sell him an annuity where payments increase each year by exactly 10%. Find the cost of this annuity if the rate of intere
- Mr. Tomas wants to buy an annuity of $1,000 a year for 10 years that is protected against inflation. The ABC Trust Company offers to sell him an annuity where payments increase each year by exactly 10%. Find the cost of this annuity if the rate of interes
- After graduating from UT, you are hired by a company that offers a 401(k) retirement plan. You would like to save enough in this plan so that when you retire in 35 years you have an account balance of
- An insurance agent is trying to sell you an immediate- retirement annuity, which for a single amount paid today will provide you with $12,000 at the end of each year for the next 25 years. You current
- Future Value of Annuity: Jesse has just learned that she won $1 million in her state lottery. She has the choice of receiving a lump-sum payment of $312,950 or $50,000 per year for the next 20 years.
- a. Rachel is currently 55 years old and has a retirement plan where she will receive a 30-year annuity with an annual payment of $50,000 starting in year 10 (at age 65) that will continue until she is
- Jorge inherited an annuity worth $4, 335.57 from his uncle. The annuity will pay him seven equal payments of $950 at the end of each year. The annuity fund is offering a return of .................................
- Using the following annuity values, how much would a normal retirement benefit need to be reduced at each age in order for the value of the normal retirement benefit to be equal to the value of the early retirement benefit? Immediate Annuity factor = Valu
- A friend inherits an annuity policy that provides $25,000 annually for the next 3 years. In an interest rate environment of 3%, what is the inheritance worth today? Period FV 3% FV Annuity PV PV Annuity 1 1.0300 1.0000 0.9709 0.9709 2 1.0609 2.0300 0.9426
- John won the lottery and has the option to receive a lump sum of $5,000,000 now or receive a $500,000 annuity every year for the next 25 years. Assuming John can earn a 10% return on his money, what would you advise him to do? a. Take the annuity because
- You belong to an unusual pension plan because your retirement payments will continue forever (and will go to your descendants after you die). If you will receive $5,000 per month every month forever (in perpetuity) starting 40 years from today (in monthly
- Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the s
- Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension f
Explore our homework questions and answers library
Browse
by subject