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 $72,000 at age 65, the firm will pay the retiring professor $400 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?
b. What is the effective annual interest rate?
c. If the monthly interest rate is 0.50%, what monthly annuity payment can the firm offer to the retiring professor?
Effective Annual Rate:
The effective annual rate is the compounded rate of return on an investment. This rate will be different from the stated annual rate if the investment provides more frequent payments than once a year.
Answer and Explanation: 1
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View this answera. 20 years = 240 months.
We can use the a financial calculator to find r, the monthly interest rate. The inputs would be PV = -72,000; n = 240; PMT...
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What is Annuity? - Definition & Formula
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Chapter 2 / Lesson 7
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Learn about annuities. Understand what an annuity is, examine the annuity formula and learn how to calculate its future value, and see examples of annuities.
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