Sophia purchased a variable annuity contract with a purchase payment of $70,000. Surrender charges begin with 9 percent in the firstyear and decline by 1.0 percent each year. In addition, Sophia can withdraw 12 percent of her contract value each year without payingsurrender charges. In the first year, Sophia needed to withdraw $13,700. Assume that the contract value had not increased ordecreased because of investment performance. What was the surrender charge Sophia had to pay?Surrender charge

Contract Value = $70,000Surrender charge = 9% in first year and declines by 1% each yearWithout…

Answered: Sophia purchased a variable annuity…

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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Nine months ago, Muriel agreed to pay Aisha $1,400 and $800 on dates 6 and 12 months, respectively, from the date of the agreement. With each payment Muriel agreed to pay interest at the rate of 7% from the date of the agreement. Muriel failed to make the first payment and now wishes to settle her obligations with a single payment four months from now. What payment should Aisha be willing to accept if money can earn 5 1/2 % ?
Barbara has a sum of money to invest. She has two options. One offers a 24% rate compounded yearly where no interest is given for a fraction of a year. The other offers a 12% rate compounded monthly. If, unexpectedly, she had to retrieve her money after exactly 23 months, which option would be more profitable?
George buys an immediate annuity at a price that gives him a yield of i effective per annum. The annuity pays $1,000 per annum for 18 years. Just after he receives the 5th payment, George decides to sell the remaining payments to Liz at a price that will yield Liz 3.75% effective per annum. George’s yield rate over the 5-year period is 5.92%. Determine i. Show Solution.
Jennifer establishes an investment account to pay for college expenses for her daughter. She plans to invest X at the beginning of each month for the next 20 years. Beginning at the end of the 17th year, she will withdraw 55,000 annually. The final withdrawal at the end of the 20th year will exhaust the account. She anticipates earning an annual effective yield of 11% on the investment. Calculate X. 276.80 307.70 317.60 346.20 349.10
Betty Kay has a contract in which she will receive the following payment for thenext 5 year: $1,000, $2,000, $3,000, $4,000 and $5,000. She will then receive an annuity of$8,500 a year for the end of the 6th through the end of the 15th year. She is offered a $30,000to cancel the contract. If the payments are discounted at 14 percent should she cancel thecontract? Show all workings.
Aline has three contracts from which to choose. The first contract will require an outlay of $ 100,000, but will return $ 150,000, one year from now. The second contract requires an outlay of $ 200,000, and will return $ 300,000, one year from now. The third contract requires an outlay of $ 250,000, and will return $ 355,000, one year from now. Only one contract can be accepted. If her MARR is 20%, which one should she choose?

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