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In: Finance

Your rich uncle dies, leaving you a life insurance policy. Option 1 is to withdraw $100,000

Your rich uncle dies, leaving you a life insurance policy. Option 1 is to withdraw $100,000. The insurance company also offers you option 2 (an annuity) to receive $9,000/year for 20 years, with the first payment due in year 1. The discount rate is 6% per year. Which option should you use?

Solutions

Expert Solution

The present value of option 1 is $100,000

The present value of option 2 is:

=PV(6%,20,9000)

=103229.29

Option 2 is better as it pays more.

jeff jeffy answered 1 year ago
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