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 $87,000 at age 65, the firm will pay the retiring professor $775 a month until death.
a. If the professor's remaining life expectancy is 15 years, what is the monthly interest rate on this annuity? What is the effective annual rate?
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?
Present Value of annuity
Present value of annuity is the present value of equal periodic payments received till a particular date. It is calculated by multiplying periodic payments by the Present Value Annuity Factor
Answer and Explanation: 1
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View this answerPresent Value of Annuity = Periodic Payments x PVAF (r,n)
r is the periodic rate
n is the no of periods
PVAF is given by = (1- (1/1+r)^n) / r
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How to Calculate the Present Value of an Annuity
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.
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