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 $71,000 at age 65, the firm will pay the retiring professor $375 a month until death.
a. If the professor's remaining life expectancy is 20 years, what is the monthly interest rate on this annuity? What is the effective annual rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. What is the effective annual interest rate? (Use the monthly rate computed in part (a) rounded to 2 decimal places when expressed as a percent. Enter your answer as a percent rounded to 2 decimal places.)
c. If the monthly interest rate is .75%, what monthly annuity payment can the firm offer to the retiring professor? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Effective Annual Rate:
Interest rates on loans are often quoted in terms of annual percentage rate, e.g., credit card interest rates. The annual percentage rate is a nominal interest rate that does not account for compounding of interest, and hence will understate the true borrowing cost.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answera. The monthly interest rate is 0.21%.
Denote the monthly interest rate by r. At this interest rate, the present value of the payment is equal to the...
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
How to Find the Value of an Annuity
from
Chapter 21 / Lesson 15
9.4K
An annuity is a type of savings account that pays back the investor in the future. Learn the formula used to calculate an annuity's value, and understand the importance of labeling specific numbers to calculate an output over time.
Related to this Question
- 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 $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 $87,000 at age 65, the firm will pay the retiring professor $775 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 $70,000 at age 65, the firm will pay the retiring professor $500 a month until death. If the professor's re
- 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 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
- 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
- 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
- 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
- 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
- "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 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
- 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
- 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 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
- 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
- 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
- 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. Jorge's friend, Rafael, has hired a financial planner for advice on retirement. Considering Rafael's current expense
- A woman has an inheritance in a trust fund for family members left by her recently deceased father that will pay $50,000 at the end of each year indefinitely into the future. She has just turned 60 and does not think that this perpetuity-immediate meets h
- Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for himself and is considering an annuity contract with the Philo Life Insurance Company. Such a contract pays him an equal-dollar amount each year that he lives. For
- Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for himself and is considering an annuity contract with the Philo Life Insurance Company. Such a contract pays him an equal-dollar amount each year that he lives. Fo
- Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for himself and is considering an annuity contract with the Philo Life Insurance Company. Such a contract pays him an equal-dollar amount each year that he lives. F
- Selyn Cohen is 63 years old and recently retired. He wishes to provide retirement income for himself and is considering an annuity contract with the Philo Life Insurance Company. Such a contract pays him an equal-dollar amount each year that he lives
- Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent, who believes that Nicki is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee he
- Your father is planning to retire, and his employer has promised him a guaranteed but fixed income of $50,000 per year for the rest of his life. If the rate of inflation is 5% per year, how much in current dollars will the payment at the end of the 20th y
- When planning the retirement payout, there are several options from which to make a decision. With the (blank) option the annuity provides payments over the life of both you and your spouse. (a) lump
- His recently departed dear Aunt Annie, may she rest in peace, has left Tom a 6-year annuity paying $4,500 per year. He will receive the first payment 4 years from today. If he is discounting at 7% (EA
- A grandfather sets up a trust for his only grandchild. The trust consists of an annuity that will pay $5,000 monthly to the grandchild for 18 years. The annuity pays an annual return of 5% and makes t
- Prof. Business has a self-managed retirement plan through her University and would like to retire in 14 years and wonders if her current and future planned savings will provide adequate future retirem
- Jill Moran's Retirement Annuity Sunrise Industries wishes to accumulate funds to provide a retirement annuity for its vice president of research, Jill Moran. Ms. Moran, by contract, will retire at the
- You have 42 years left until retirement and want to retire with $4.8 million. Your salary is paid annually, and you will receive $76,000 at the end of the current year. Your salary will increase at 2.6 percent per year, and you can earn a 10.0 percent ret
- Many academic institutions offer a sabbatical policy. Every seven years a professor is given a year free of teaching and other administrative responsibilities at full pay. For a professor earning $70,
- 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 same purchasing power at the time he retires as $35,000
- Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pensi
- Retirement planning Personal Finance Problem Hal? Thomas, a 25?-year-old college... Retirement planning Personal Finance Problem Hal? Thomas, a 25?-year-old college? graduate, wishes to retire at age 60. To supplement other sources of retirement? income,
- Tom Jacobs has never paid into social security because he worked for the Massachusetts Teacher's Association which opts out of social security. He currently receives a $40,000/yr teacher's pension. He
- Bill Petty, age 56 has just retired after 31 years of teaching. He is a husband and father of two children who are still dependent. Bill received a $150,000 lump-sum retirement bonus and will also rec
- After graduating from IU, 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
- (a) 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 $48,000 per year at the end of eac
- Your folks just called and would like some advice from you.An insurance agent just called them and offer them the opportunity to purchase an annuity for $16,331.38. That will pay them $2,500 per year
- Your folks just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $18,684.86 that will pay them $3,000 per yea
- Your folks just called, and would like some advice from you. An insurance agent just called them, and offered them the opportunity to purchase an annuity, for $21,074.25, that will pay them $3,000 per
- A. Doctor Stephen Strange, MD, wants to allocate $5,000 of this year s wage earnings to save for retirement. He is 40 years old and wants to retire at the age of 65, at which point he will consume his retirement savings. He has seen 14,000,307 possible ou
- Professor Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year, the firm would have access to eight hours of her time every month. As an alternative payment a
- Hal Thomas, a 25-year-old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arra
- 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% annually, how much does your grandfather need to invest to produce the d
- After graduating from IU, 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 43 years you have an account balance of dollar 1 million. You plan to make monthly contributio
- A taxpayer, age 64, purchases an annuity from an insurance company for $50,000. She is to receive $300 per month for life. Her life expectancy 20.8 years from the annuity starting date. Assuming that she receives $3,600 this year, what is the exclusion pe
- You have just won the NY Lotttery and can choose either a $2,100,000 annuity payable in 30 installments of $70,000 (value of annuity as of today is $1,094,444) or one lump sum payment of $1,094,444.
- Hal Thomas, a 25-year-old college graduate, wishes to retire at age 60. To supplement other sources of retirement income, he can deposit $2,400 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a return of 12?% over
- Hal Thomas, a 35-year-old college graduate, wishes to retire at age 60. To supplement other sources of retirement income, he can deposit $2,000 each year into a tax-deferred individual retirement arrangement (IRA). The IRA will earn a 12% return over the
- Preston expects to retire in 40 years at age 65. He is currently putting away 5% of his annual salary in a retirement plan that earns 5% per year. His employer is contributing 2% of his salary. Currently he is making $40,000 per year and he expects it to
- Mr. Baker is planning for his retirement. He is planning to work for 100 years (from now). He plans to live forever after he retires, and would like to have an annual payment of pound 100,000, starting 100 years from now (when he retires). How much will M
- You've just retired after a 25 year career with a wildlife consulting firm. Your employer offers you two retirement options. Option A pays you $2,000 per month for 20 years. Option B pays you $1,000 a month in perpetuity (your heirs will receive this even
- Jared is looking forward to graduating with his MBA from OSU. He wants to begin saving for retirement and believes he will need $135,000 during his first year in retirement (he assumes a 2% annual inf
- Your friend John asks you for advice concerning life insurance. John is 34 years old and graduated from law school last year. He currently earns $24,000 per year as a waiter, but is looking for a posi
- C. Doctor Stephen Strange, MD, wants to allocate $5,000 of this year's wage earnings to save for retirement. He is 40 years old and wants to retire at the age of 65, at which point he will consume his retirement savings. He has seen 14,000,307 possible ou
- B. Doctor Stephen Strange, MD, wants to allocate $5,000 of this year's wage earnings to save for retirement. He is 40 years old and wants to retire at the age of 65, at which point he will consume his retirement savings. He has seen 14,000,307 possible ou
- Your professor is paid only nine months out of the year. Suppose that she were fired each spring and rehired each fall, and thereby be eligible for unemployment insurance benefits. Do you think that would affect her consumption smoothing over the year, re
- Which of the following is an example of an annuity? a. A job contract that pays a regular monthly salary for three years. b. A job contract that pays an hourly wage based or the work done or a particular day.
- After graduating from college, 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 balan
- Mark retired and began receiving retirement income on May 1, 2016. No distributions were received prior to his retirement. Mark did not select a joint survivor annuity for these payments. Mark DOB-1-1-45. This is for 2016 tax return. Mark's 1099-R Box 1-G
- One of your clients is about to retire, and has two choices for his retirement plan payouts. He can elect to receive a 23 year annuity of 20,000 per year starting at the end of this year, or a lump sum of 251,000 payable immediately. If the client's requi
- EZ Leifer plans to retire at the age of 65 and believes he will live to be 90. EZ wants to receive an annual retirement payment of $ 50,000 at the beginning of each year. He sets up a retirement accou
- Mario, age 65, purchased an immediate annuity for $120,000 that pays a lifetime monthly income of $1,000. The annuity has no refund feature. Based on the IRS actuarial table, Mario has a life expectancy of 20 years. If Mario receives 12 monthly payments o
- Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $35,000 has today. (the real value of
- As soon as she graduated from college, Kay began planning for her retirement. Her plans were to deposit $500 semiannually into an IRA (a retirement fund) beginning six months after graduation and continuing until the day she retired, which she expected to
- It is now January of 2057. You have achieved your goal of funding your retirement account with $2,000,000. You have decided to retire. You wish to convert your $2,000,000 to a "lifetime annuity" which will provide you with a monthly payment for the rest o
- Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he reti
- Sunrise Industries wishes to accumulate funds to provide a retirement annuity for its vice president of research, Jill Moran. Ms. Moran, by contract, will retire at the end of exactly 12 years. Upon r
- Ted Gardiner has just turned 30 years old. He has currently accumulated $35,000 toward his planned retirement at age 60. He wants to accumulate enough money over the next 30 years to provide for a 20-year retirement annuity of $100,000 at the beginning of
- Professor Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. In return, next year, the firm would have access to eight hours of her time every month. As an alternative payment arrangeme
- Which of the following is an example of an annuity? a. A job contract that pays an hourly wage based on the work done on a particular day b. A job contract that pays a regular monthly salary for three
- Your father's employer was just acquired, and he was given a severance payment of $550,000, which he invested at a 3.5% annual rate. He now plans to retire, and he wants to withdraw $25,000 at the end
- Hal Thomas, a 25 year old college graduate, wishes to retire at age 65. To supplement other sources of retirement income, he can deposit $2,500 each year into a tax-deferred individual retirement arra
- Jared is looking forward to graduating with his MBA from OSU. 1. He wants to begin saving for retirement and believes he will need $135,000 during his first year in retirement (he assumes
- Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He currently earns $40,000 per yea
- The pension plan offered by Fulton County School District provides the retired teachers with an annual payment that is calculated as 1% of their 'high 5 average salaries' for each year that they taught in the District. Mary's highest five years of pay in
- Assume that your father is now 40 years old, that he plans to retire in 20 years, and that he expects to live for 25 years after he retires, that is until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retir
- Hal Thomas, a 30-year-old college graduate, wishes to retire at age 60. To supplement other sources of retirement income, he can deposit $2000 each year into a tax-deferred individual retirement arran
- After retiring from a company or organization, have you ever had a pension which was promised to you for life, become insolvent?
- Stan wants to plan for his retirement in 10 years During his 30 year retirement, he plans to spend $5,000 monthly, while earning 10% in his retirement funds. He will save monthly in his retirement fund with his employer over the next 30 years where he pla
- Many retired people buy annuities. With an annuity, a saver pays an insurance company, such as Berkshire Hathaway Insurance Company or Northwestern Mutual Insurance Company, a lump-sum amount in return for the company's promise to pay a certain amount per
- The Atkins Brothers recently established a trust fund that will provide annual scholarships of $10,000 indefinitely. These annual scholarships are: A. an ordinary annuity. B. an annuity due. C. amortized payments. D. a perpetuity. E. a perpetuity due.
- A family member passes away and leaves you an inheritance. The terms of the will specify that you may choose between annual payments of $50,000 at the end of each of 5 years, or a lump sum payment of $200,000 now. Seeing this as an opportunity to start sa
- Your grandmother bought an annuity from Rock Solid Life Insurance Company for $320,000 when she retired. In exchange for the $320,000, Rock Solid will pay her $50,000 per year until she dies. The inte
- You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $100,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement
- Fresh out of college, you are negotiating with a prospective new employer. They offer you a signing bonus today of 2,000,000 or a future lump sum of 2,500,000 at the end of three years from now. If you can earn 7% on the invested funds, which of the follo
- Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires - that is, until he is 85. He wants his first retirement pay
- The student is now 35 and $100,000 in retirement savings. Student withdrawals $75,000 early. The student then reenters the workforce and begins saving again for retirement at age 38. The student then works another 30 years. The student has $7,000 in retir
- Stan wants to plan for his retirement in 10 years. During his 30 year retirement, he plans to spend $5,000 monthly, while earning 10% his retirement funds. He will save monthly in his 401K retirement fund with his employer over the next 30 years where he
- Jacob owns a policy that pays a death benefit only if he dies within the 20-year policy period. If Jacob dies anytime that the policy is in force, his beneficiary will receive $100,000. The premium that Jacob pays for this policy will be the same through
- Your finance professor Dr. Anderson makes you the following offer: He will give you $3,000 at the end of each year for the next six years if you agree to pay him back $2,500 at the end of each of the
- You have just started your first job and are already planning for retirement. You plan on retiring in 25 years and to support your lifestyle you will need to have saved $1,750,000 at the time of your retirement. Your retirement account promises a 10-degre
- Future value of an annuity - Your client is 22 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $10,000 per year; and you advise
- Future value of an annuity Your client is 34 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $15,000 per year; and you advise he
Explore our homework questions and answers library
Browse
by subject