Question

You deposit $11,000 annually into a life insurance fund for the next 11 years, after which time you plan to retire.

a. If the deposits are made at the beginning of the year and earn an interest rate of 6 percent, what will be the amount in the retirement fund at the end of year 11?
b. Instead of a lump sum, you wish to receive annuities for the next 22 years (years 12 through 33). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 6 percent during the distribution period?
c. Repeat parts (a) and (b) above assuming earning rates of 5 percent and 7 percent during the deposit period and earning rates of 5 percent and 7 percent during the distribution period.

  

Answer 1

a	amount in the retirement fund at the end of year 11	$174,569.35
b	constant annual payment	$14,497.21
c	At 5%
	amount in the retirement fund at the end of year 11	$164,088.39
	constant annual payment	$12,465.88
	At 7%
	amount in the retirement fund at the end of year 11	$185,772.96
	constant annual payment	$16,794.95

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