Larry purchased an annuity from an insurance company that promises to pay him $11,500 per month for the rest of his life. Larry paid $1,410,360 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $11,500 this month. Use the expected number of payments in Exhibit 5-1 for this problem. Required: a. How much of the first payment should Larry include in gross income? b. If Larry lives more than 15 years after starting the annuity, how much of each additional payment should he include in gross income? c. What are the tax consequences if Larry dies just after he receives the 100th payment?
Larry purchased an annuity from an insurance company that promises to pay him $11,500 per month for the rest of his life. Larry paid $1,410,360 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $11,500 this month. Use the expected number of payments in Exhibit 5-1 for this problem. Required: a. How much of the first payment should Larry include in gross income? b. If Larry lives more than 15 years after starting the annuity, how much of each additional payment should he include in gross income? c. What are the tax consequences if Larry dies just after he receives the 100th payment?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Subject:- finance
Transcribed Image Text:Larry purchased an annuity from an insurance company that promises to pay him $11,500 per month for the rest of his life. Larry paid
$1,410,360 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $11,500 this month.
Use the expected number of payments in Exhibit 5-1 for this problem.
Required:
a. How much of the first payment should Larry include
b. If Larry lives more than 15 years after starting the annuity, how much of each additional payment should he include in gross income?
c. What are the tax consequences if Larry dies just after he receives the 100th payment?
Complete this question by entering your answers in the tabs below.
Required A Required B Required c
What are the tax consequences if Larry dies just after he receives the 100th payment?
Amount to be deducted
gross income?
< Required B
68
69
70
71
72
Required c>
EXHIBIT 5-1 Table for Expected Return Multiple for Ordinary Single-Life Annuity
Age at Annuity Starting Date Expected Return Multiple
17.6
16.8
16.0
15.3
14.6
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