Are annuities good investments? To answer this question, consider the situation of John. He is 50 years old and can purchase a lifetime annuity for $100,000. The annuity pays John $8,000 per year for the rest of his life. If John lives to be 85, what rate of return will he earn on this investment? What if John only lives to be 77? If John lives to age 85, his IRR is If John lives to age 77, his IRR is % per year. (Round to two decimal places.) % per year. (Round to two decimal places.)

Are annuities good investments? To answer this question, consider the situation of John. He is 50 years old and can purchase a lifetime annuity for $100,000. The annuity pays John $8,000 per year for the rest of his life. If John lives to be 85, what rate of return will he earn on this investment? What if John only lives to be 77? If John lives to age 85, his IRR is If John lives to age 77, his IRR is % per year. (Round to two decimal places.) % per year. (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 43P

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Are annuities good investments? To answer this question, consider the situation of John. He is 50 years old and can purchase a lifetime annuity for $200,000. The annuity pays John $9,000 per year for the rest of his life. If John lives to be 85, what rate of return will he earn on this investment? What if John only lives to be 75?
Suppose that Paolo is 45 years old and has no retirement savings. He wants to begin saving for retirement, with the first payment coming one year from now. He can save $12,000 per year and will invest that amount in the stock market, where it is expected to yield an average annual return of 8.00% return. Assume that this rate will be constant for the rest of his's life. Paolo would like to calculate how much money he will have at age 65. Using a financial calculator yields a future value of this ordinary annuity to be approximately Paolo would now like to calculate how much money he will have at age 70. Using a financial calculator yields a future value of this ordinary annuity to be approximately at age 65. Paolo expects to live for another 25 years if he retires at age 65, with the same expected percent return on investments in the stock market. Using a financial calculator, you can calculate that Paolo can withdraw retirement at age 65), assuming a fixed withdrawal each year and $0…
c. She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70.If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age?
Mohammed is 65 years of age and has a life expectancy of 12 more years. He wishes to invest $40,000 in an annuity that will make a level payment at the end of each year until his death. If the interest rate is 10%, what income can Mr. Mohammed expect to receive each year? (Choose the correct answer from below options and attach all your explanations in the other link provided) Select one: a. 27256 b. 272 c. 2725 d. 272560
Abdulrahman is 60 years of age and has a life expectancy of 15 more years. He wishes to invest $25,000 in an annuity that will make a level payment at the end of each year until his death. If the interest rate is 10%, what income can Mr. Abdurrahman expect to receive each year? Select one: a. 190152 b. 90152 c. 550320 d. 25025
Imagine your uncle is currently earning $200,000 pa and is about to retire. What percent of his current income will Social Security pay?
You believe you will need to have saved $593,000 by the time you retire in 30 years in order to live comfortably. You also believe that you will inherit $113,000 in 5 years. 1) If the interest rate is 7% per year, what is the future value of your inheritance at retirement? 2) How much additional money must you save to meet your retirement goal, assuming you save your entire inheritance?
Consider the case of the following annuities, and the need to compute either their expected rate of return or duration. Ryan inherited an annuity worth $3,280.16 from his uncle. The annuity will pay him five equal payments of $800 at the end of each year. The annuity fund is offering a return of . Ryan’s friend, Sebastian, wants to go to business school. While his father will share some of the expenses, Sebastian still needs to put in the rest on his own. But Sebastian has no money saved for it yet. According to his calculations, it will cost him $30,044 to complete the business program, including tuition, cost of living, and other expenses. He has decided to deposit $4,200 at the end of every year in a mutual fund, from which he expects to earn a fixed 7% rate of return. It will take approximately for Sebastian to save enough money to go to business school.
A 45-year-old woman decides to put funds into a retirement plan. She can save $2,000 a year and earn 6 percent on this savings. How much will she have accumulated if she retires at age 65? At retirement how much can she withdraw each year for 20 years from the accumulated savings if the savings continue to earn 6 percent?
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he ex- pects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement in- come that has the same purchasing power at the time he retires as $40,000 has today (he real- izes that the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then get 24 ad- ditional annual payments. Inflation is expected to be 5 percent per year from today forward; he currently has $100,000 saved up; and he expects to earn a return on his savings of 8 percent per year, annual compounding. To the nearest dollar, how much must he save during each of the years (with deposits being made at the end of each year) to meet his retirement goal? 6-22 Required annuity payments next 10
Myrna is 50 years old now. She plans to retire at age 65. She wants to have half a million pesos at the end of her retirement An investment company offered her a portfolio that will give her an interest rate of 8% per annum. Assuming ordinary annuity, how much does she have to pay per month so that she will be a half-millionaire when she retires .
Alex Arnold has just turned 65. He has $100,000 to invest in a retirement annuity. One investment company has offered to pay Alex $10,000 per year for 15 years (payments to begin in one year) in exchange for an immediate $100,000 payment. If Alex accepts the offer from the investment company, what is his expected return on the $100,000 investment (assume a return that is compounded annually)? Present value tables or a financial calculator are required. Select one: a. between 5 and 6 percent b. between 7 and 8 percent c. between 8 and 9 percent d. between 6 and 7 percent