Your uncle is about to retire, and he wants to buy an annuity that will provide him with $80,000...
Question:
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 buy the annuity today?
Annuity:
An annuity can be defined as a series of cash payments that are included at regular intervals for a definite period. If the amount in each annuity is growing then it will be called a growing annuity.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answerThe calculation for today's annuity cost is shown below.
{eq}Today \ annuity \ cost \ = \ Income \ \times \ \dfrac{1 \ - \ \left ( 1 \ + \ Rate...
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
What is Annuity? - Definition & Formula
from
Chapter 2 / Lesson 7
22K
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.
Related to this Question
- 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
- 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 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, 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 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 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
- 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 $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
- A 5-year annuity of 10 $9,000 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. Requirement 1: If the discount rate is 9 percent compounded semiannua
- 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 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
- 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%
- 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
- 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?
- 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?
- 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
- 1. Calculating Annuity Present Values An investment offers $8,600 per year for 17 years, with the first payment occurring 1 year from now. Assume the required return is 9 percent. Requirement 1: Wh
- An investor will receive an annuity of $5,000 a year for seven years. The first payment is to be received 5 years from today. If the annual interest rate is 11.5%, what is the present value of the annuity? A) $13,453 B) $15,000 C) $23,185
- An annuity immediate paying 200 at the end of each year for 50 years with AEIR 5% is to be exchanged for a 25 year annuity immediate whose first payment is X, and where subsequently payments increase
- Your great aunt left you $20 000 when she died. You can invest the money to earn 12% per year. If you spend $3,540 per year out of this inheritance, how long will the money last? Try to use an appropriate annuity formula, and make sure to clearly state an
- Your uncle has $500,000 and wants to retire. He expects to live for another 30 years and to earn 6.5% on his invested funds. How much could he withdraw at the end of each of the next 30 years and end
- Your uncle has $1,135,000 and wants to retire. He expects to live for another 40 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 30 years and en
- Your uncle has $375000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of the next 25 years and end up with z
- 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 .................................
- Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account? a) $30,361.46 b) $35,323
- Your uncle has $375,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?
- Your uncle has $500,000 and wants to retire. He expects to live for another 30 years and to earn 6.5% on his invested funds. How much could he withdraw at the end of each of the next 30 years and end up with zero in the account?
- Aunt Zelda's son starts college in 5 years, for which she will need $15,000 payable at the end of each of the 4 years. Suppose she can buy an annuity in 5 yrs. That will enable her to make the four $15,000 annual payments. Draw a timeline for all cash flo
- __________ 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 uncle has $475,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 8.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?
- Your uncle has $375,000 and wants to retire. He expects to live for another 25 years, and he also expects to earn 7.5% on his invested funds. How much could he withdraw at the beginning of each of the next 25 years and end up with zero in the account?
- When you retire you will initially require an annual income of $125,000 per year. You anticipate living for 25 years during retirement with an 8% investment return. How much do you need in your pensio
- 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?
- 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
- As part of his retirement planning, your uncle has been offered a security that promises to pay $50,000 at the end of each next 20 years. If the interest rate is 6% how much should he be willing to pa
- 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
- 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 would like to have enough money saved to receive a growing annuity for 25 years, growing at a rate of 4% per year, with the first payment of $60,000 occurring exactly one year after retirement. How much would you need to save in your retirement fund t
- 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?
- Please show how to complete A 9-year annuity of 18 $10,400 semiannual payments will begin 11 years from now, with the first payment coming 11.5 years from now. Requirement 1: If the discount rate is 8
- 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
- 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
- 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
- A 15-payment annual annuity has its first payment in nine years. If the payment amount is $1,400 and the interest rate is 7 percent, what is the most you should be willing to pay today for this investment? a) $5,825.11 b) $12,751.08 c) $6,416.67 d) $7,421
- Your uncle plans to leave you an inheritance of $200,000. If his life expectancy is twenty years, and the annual rate of interest is 9 percent, what is the inheritance currently worth?
- Roshanna has just won the lottery. Her required rate of return is 6%. Should she take the annual annuity payment of $125,000 for the next 20 years or an immediate lump sum payout of $1.5 Million?
- Mary's grandmother wants to buy an annuity from Met Life that pays her $1300 / month for 10 years. She and Met Life agree on a nominal interest rate of 4.1 %. She wants $15,000 left at the end of the 10 years to leave to Mary. What should the annuity cost
- Al is given a fifteen-year annuity with end-of-year payments. The first payment Al receives, precisely one year from the date he is given the annuity, is for $100, and then subsequent payments decreas
- Sponge Bob will receive a payment of $5,000 per year for seven years beginning three years from today. At a discount rate of 9%, what is the present value of this deferred annuity?
- Dwayne invests $4,700 in a savings account at the beginning of each of the next twelve years. If his opportunity cost rate is 7 percent compounded annually, how much will his investment be worth after the last annuity payment is made? a. $89,817.00 b. $95
- 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%?
- A 7-year annuity of 14 $9,700 semiannual payments will begin 10 years from now, with the first payment coming 10.5 years from now. If the discount rate is 11%, compounded semiannually, what is the val
- 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.
- 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
- Use BA II Plus Financial Calculator to solve these questions. An 8-year annuity of 16 $8,700 semiannual payments will begin 10 years from now, with the first payment coming 10.5 years from now. Requ
- 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
- 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 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,
- Bob's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $700 per year forever. If the required return on this investment is 12 percent, how much will you pay for the policy?
- Sam is 40 and would like to retire at 65 and plans to live until 80, so he needs to determine how much he should start depositing into an interest-bearing retirement account now. His goal is to have a monthly annuity payout of $4800 per month. The interes
- The Wanting Life Insurance Co., is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever, and the first payment will start 3 years from now. If the require
- Jasper is bequeathed a thirty-year deferred annuity that has a payment at the end of each third year. The first payment is for $15000 and is made five years after she receives inheritance. There is al
- 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
- 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
- You are willing to pay $15,625 to purchase a perpetuity that will pay you and your heirs $1,250 each year, forever. If you required rate of return does not change, how much would you be willing to pay if this were a 20-year annuity of $1,250 annual paymen
- The future value of an annuity will be larger if: 1. the annuity is an ordinary annuity 2. the annuity is an annuity due 3. the payments are made at the beginning of the year 4. the payments are made at the end of the year a. 1 and 3 b. 1 and 4 c. 2 and
- New Jersey Mutual has offered you a single premium annuity that will pay you $12,000 per year (end of year) for the next 15 years. If you must pay $109,296 today for this annuity, what is your expected rate of return? a. 8% b. 9% c. 7% d. 10%
- 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
- 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
- John purchases a 10-year annuity, and Paul purchases a 20-year annuity. Both annuities make level payments at the end of each year, the cost of each annuity is the same, and both annuities are based on an effective annual interest rate of i. The annual pa
- If I were receiving a deferred annuity of $12,000 per year starting five years from today and ending in year 8 (4 payments) what would be its value today if the discount rate is 12%? Assume that no cash flows occur in the first four years. a. $23,889.45
- 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 5-year annuity of ten $6,200 semiannual payments will begin 9 years from now, with the first payment coming 9.5 years from now. (Do not round intermediate calculations and round your final answer to
- 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
- You uncle has asked you for some advice as he has just retired and he heard that you know about time value of money calculations. He has $500,000 saved in his pension account and he expects to live another 20 years. When he dies in 20 years time, he would
- My uncle Samuel has $450,000 invested at 6.5%, and he plans to retire. He wants to withdraw $40,000 at the beginning of each year, starting immediately. How many years will it take to exhaust her fund
- 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
- Your aunt has $1,500,000 and wants to retire. He expects to live for another 40 years and to earn 4.5% on his invested funds. How much could he withdraw at the end of each of the next 40 years and end
- 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
- 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
- Roy, who has just turned 40, would like to have an annual annuity of $20,000 paid over a 20 year period, the first payment occurring on his 66th birthday. How much must Roy save each year (end of year) for the next 25 years to have this annuity, if the in
- 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
- You want to buy an ordinary annuity that will pay you $4,000 per year for the next 20 years. You expect annual interest rates will be 8 percent over that time period. What is the maximum price you would be willing to pay for this annuity?
- 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
- 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
- Carl receives a 15 year annuity which makes payments at the beginning of each month. The payments during the first year are 10 dollar per month (the sum of the payments is 1,200 dollar over the first
- If Otto Mann agrees to pay $40,000 for an annuity that provides $605 at the beginning of each month for the next 10 years, given an annual interest rate of 6.9%, would you say that he made a good investment or not? (Hint: You need to calculate the present
- This annuity usually requires a minimum investment ($2,500 to $10,000) and is often purchased just before retirement as a way of creating a future stream of income. a. Single premium annuity b. Immediate annuity c. Installment premium annuity contract d.
- 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 Maybe Pay Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever. If the required return on this investment is 8 percent, how much
- 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
- Jay plans to have a fixed amount from his paycheck directly deposited into an account that pays 5.5% interest, compounded monthly. If he gets paid on the first of each month( annuity due) and wants to
- Assume that Social Security promises you $35,000 per year starting when you retire 45 years from today (the first $35,000 will get paid 45 years from now) If your discount rate is 4%, compounded annu
- Your aunt wants to retire and has $375,000. She expects to live for another 25 years and to earn 7.5% of her invested funds. How much could she withdraw at the end of each of the next 25 years and end up with zero in the account? a. $35,323.58 b. $33,64
- You are going to pay $100 into an account at the beginning of each of the next 40 years. At the beginning of the 41st year you buy a 30 year annuity whose first payment comes at the end of the 41st ye
Explore our homework questions and answers library
Browse
by subject