Paying Yourself for 20 Years Investing $500,000 sounds like a great idea, but you also want to spend some of this money. So you decide to use the $500,000 to purchase an annuity Use the Present Value of an Annuity Calculator to determine what you could withdraw on an annual basis. Assume the following: Interest rate is 4.2% compounded annually You want to withdraw a payment every year for 20 years (Show a screenshot of the calculator's settings.) Comparing Lump Sum and Annuity You're told you have the option of receiving your winnings "cash for life" style: $25,000 a year for the next 20 years. ● 1. Why will taking this option net you less money in the end? 2. What annual payment would you need to receive to earn the equivalent of $500,000 today (assume an interest rate of 4.2%).
Paying Yourself for 20 Years Investing $500,000 sounds like a great idea, but you also want to spend some of this money. So you decide to use the $500,000 to purchase an annuity Use the Present Value of an Annuity Calculator to determine what you could withdraw on an annual basis. Assume the following: Interest rate is 4.2% compounded annually You want to withdraw a payment every year for 20 years (Show a screenshot of the calculator's settings.) Comparing Lump Sum and Annuity You're told you have the option of receiving your winnings "cash for life" style: $25,000 a year for the next 20 years. ● 1. Why will taking this option net you less money in the end? 2. What annual payment would you need to receive to earn the equivalent of $500,000 today (assume an interest rate of 4.2%).
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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Aa.37.
Transcribed Image Text:Paying Yourself for 20 Years
Investing $500,000 sounds like a great idea, but you also want to spend some of this money. So you
decide to use the $500,000 to purchase an annuity
Use the Present Value of an Annuity Calculator to determine what you could withdraw on an annual
basis. Assume the following:
Interest rate is 4.2% compounded annually
You want to withdraw a payment every year for 20 years
(Show a screenshot of the calculator's settings.)
Comparing Lump Sum and Annuity
You're told you have the option of receiving your winnings "cash for life" style: $25,000 a year for the
next 20 years.
●
1. Why will taking this option net you less money in the end?
2.
What annual payment would you need to receive to earn the equivalent of $500,000 today
(assume an interest rate of 4.2%).
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