A University is offering a charitable gift program. A former student who is now 50 years...

A University is offering a charitable gift program. A former student who is now 50 years old is consider the following offer: The student can invest $9,600.00 today and then will be paid a 8.00% APR return starting on his 65th birthday (i.e For a $10,000 investment, a 9% rate would mean $900 per year). The program will pay the cash flow for this investment while you are still alive. You anticipate living 20.00 more years after your 65th birthday. The former student wants a return of 7.00% on his investments, but would like to consider this opportunity.

Using the student's desired return, what is the value of this deferred annuity today on his 50th birthday?

Solutions

Expert Solution

We see that the value of the deferred annuity today is given as
=9600*9%/1.07^15*(1-1/1.07^20)/(1-1/1.07)
=6050.22025

jeff jeffy answered 2 years ago

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