Your father is about to retire, and he wants to buy an annuity that will provide him with $84,000...
Question:
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 annuities is 5.15%. How much would it cost him to buy the annuity today?
a. $1,152,778.41
b. $1,226,360.01
c. $1,091,460.41
d. $1,459,368.41
e. $1,030,142.41
Annuity Due:
An annuity due is a sequence of equal payments, delivered at a regular time interval, with each payment occurring at the beginning of each period. In the absence of any other factors, the present value of an annuity is always higher than that of an ordinary annuity.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerThe correct answer is b. $1,226,360.01.
The cost today would be the present value of the annuity due. We can use the following formula to compute 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 Calculate the Present Value of an Annuity
from
Chapter 8 / Lesson 3
5.2K
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.
Related to this Question
- 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 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 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
- 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 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
- 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
- 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. 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 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
- 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
- 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
- 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 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
- 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
- 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 t
- Your father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until is 85 years old. He wants a fixed retirement income that has the same purchasing power
- 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
- You are currently 30 years old. You intend to retire at age 60, and you want to be able to receive a 20-year, $100,000 beginning-of-the-year annuity, with the first payment to be received on your 60th
- Your Grandfather left you an inheritance that will provide an annual income for the next 20 years. You will receive the first payment one year from now in the amount of $16,500. Every year after that,
- Your grandfather left you an inheritance that will provide an annual income for the next 10 years. You will receive the first payment one year from now in the amount of $4,000. Every year after that,
- 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
- Your father has $500,000 and wants to retire. He expects to live for another 20 years, and he also expects to earn 8% on his invested funds. How much could he withdraw at the beginning of each of the
- 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
- An uncle of yours who is about to retire wants to sell some of his stock and buy an annuity that will provide him with income of $50,000 per year for 30 years, beginning a year from today. The going r
- 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
- 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?
- Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with an income of $50,000 per year for 30 years, beginning a year from today. The going
- 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
- 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
- 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
- An investor is to receive a 15-years, $8,000 annuity, with the first payment to be received today. At an 11% discount rate, how much is this annuity worth today?
- 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
- 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%
- 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
- 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
- Your aunt is about to retire, and she wants to sell some of her stock and buy an annuity that will provide her with an income of $40,000 per year for 30 years, beginning a year from today. The going rate on such annuities is 7.25%. How much would it cost
- 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
- 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
- __________ 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
- You just paid $375,000 for an annuity that will pay you and your heirs $11,200 a year forever. What rate of return are you earning on this policy?
- You just paid $361,000 for an annuity that will pay you and your heirs $12,300 a year forever. What rate of return are you earning on this policy?
- You just paid $750,000 for an annuity that will pay you and your heirs $36,000 a year forever. What rate of return are you earning on this policy?
- 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 father wants to set aside money for his 5 year old son's future college education. Money can be deposited into a bank account that earns 8% per year compounded annually. What equal payments should be made by the father on his 6th through 17th birthdays
- Mark's 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
- Your grandfather left you an inheritance that will provide an annual income for the next 10 years. You will receive the first payment one year from now in the amount of $4,000. Every year after that, the payment amount will increase by 6%. What is your in
- 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
- 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
- Assume that you own an annuity that will pay you $12,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle (who does not know finance but loves you very much) offers to give you $1
- Your father has $400,000 and wants to retire. He expects to live for another 20 years, and to be able to earn 10% on his invested funds. How much could he withdraw at the end of each of the next 20 ye
- Question Your Grandfather left you an inheritance that will provide an annual income for the next 20 years. You will receive the first payment one year from now in the amount of $16,500. Every year af
- 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
- California Life has just offered you a single premium annuity for $5,000 that will pay $5,144.12 per year for 20 years, the first payment being received exactly 31 years from today. What is the implied rate of return on this annuity? a. 7% b. 8% c. 9% d.
- You want to retire in 20 years with a monthly retirement income of $4,800 per month (first payment at the end of the first month of retirement). You hope to live 30 years in retirement. You estimate that you can conservatively invest at 6% in retirement.
- 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
- 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
- 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
- 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?
- Mathew plans to retire in 6 years from today with $1,000,000 in his retirement account. If he receives $175,000 per year from his account and he receives his first $175,000 payment in 6 years from today and his last $175,000 payment in 12 years from today
- If your father has the desire to retire in 17 years, how much money will he need to invest each year for the next 16 years (starting one year from today) to meet his goal of having $700,000 at retirem
- 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
- 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
- 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
- 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%
- 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
- 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
- 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
- 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
- Your father paid 510.000 (cf occurs at t=0) for an investment that promises to pay $850 at the end of each of the next 5 years, then an additional lump sum payment of $12,000 at the end of the 5th year. What is the expected rate of return on this investme
- Your grandmother left you an inheritance that will provide an annual income for 25 years. You will receive the first payment one year from now in the amount of $10,000. Every year after that, the paym
- 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
- 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 $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 $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 $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 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'
- 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.
- Your girlfriend just won the Florida lottery. She has the choice of $15,000,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is buil
- Your girlfriend just won the Florida lottery. She has the choice of $15,900,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is buil
- A man turns 40 today and wishes to provide supplemental retirement income of 3000 at the beginning of each month starting on his 65th birthday. Starting today, he makes monthly contributions of X to a
- You just won the lottery, which promises you $200,000 per year for the next 20 years. You receive the first payment today (hint: annuity due). If your discount rate is 9.25%, what is the present value
- You are offered an annuity that will pay you $9,000 at the end of each of the next 10 years. What is the maximum amount you would be willing to pay today for this annuity? (Assume you require a 15% rate of return on an investment of this nature.)
- Future value of an annuity - Your client is 35 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $3,000 per year; and you advise h
- Future value of an annuity - Your client is 36 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $5,000 per year; and you advise h
- Your parents 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 $14,217.56 that will pay them $2,500 per year for 15 years. They do not have the slightest idea w
- 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
- 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 account that is estimated to earn 6 percent annually. a. How
- A person wants to establish an annuity for retiremnet purposes. He wants to make quarterly deposits for 20 years so that he can then make quarterly withdrawls of $5,000 for 10 years. The annuity earns
- You plan to work for 40 years and then retire using a 25-year annuity. You want to arrange a retirement income of $4500 per month. You have access to an account that pays an APR of 7.2% compounded mon
- You want to retire 40 years from now, and have $3 million in your retirement account at that time. You will make equal payments each year to the account. If you can earn a 5% annual return on your account, how much should you set aside each year?
- 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
- 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
Explore our homework questions and answers library
Browse
by subject