Jill Chewwishes to choose the best of four immediate retirement annuities available toher. In each case, in exchange for paying a single premium today, she willreceive equal annual end-of-year cash benefits for a specified number of years.She considers the annuities to be equally risky and is not concerned abouttheir differing lives. Her decision will be based solely on the rate of returnshe will earn on each annuity. The key terms of each of the four annuities areshown in the following table. Annuity PremiumPaid Today AnnualBenefit Life(years) A $30,000 $3,100 20 B 25,000 3,900 10 C 40,000 4,200 15 D 35,000 4,000 12 a. Calculate to the nearest 1 percent the rateof return on each of the four annuities Jill is considering.b. Given Jill’s stated decision criterion, whichannuity would you recommend?
Jill Chew
wishes to choose the best of four immediate retirement
her. In each case, in exchange for paying a single premium today, she will
receive equal annual end-of-year cash benefits for a specified number of years.
She considers the annuities to be equally risky and is not concerned about
their differing lives. Her decision will be based solely on the
she will earn on each
shown in the following table.
Annuity
Premium
Paid Today
Annual
Benefit
Life
(years)
A
$30,000
$3,100
20
B
25,000
3,900
10
C
40,000
4,200
15
D
35,000
4,000
12
a. Calculate to the nearest 1 percent the rate
of return on each of the four annuities Jill is considering.
b. Given Jill’s stated decision criterion, which
annuity would you recommend?
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