Calculate the following: (LG 15-2) a. Suppose a 60-year-old person wants to purchase an annuity from...

Calculate the following: (LG 15-2)
a. Suppose a 60-year-old person wants to purchase an annuity from an insurance company that would pay $15,000 per year until the end of that person’s life. The insurance company expects this person to live for 20 more years and would be willing to pay 5 percent on the annuity. How much should the insurance company ask this person to pay for the annuity?

b. A second 60-year-old person wants the same $15,000 annuity, but this person is much healthier and is expected to live for 30 more years. If the same 5 percent interest rate applies, how much should this healthier person be charged for the annuity?

c. In each case, what is the difference in the purchase price of the annuity if the distribution payments are made at the beginning of the year?

Expert Solution

jeff jeffy answered 2 years ago

Problem 15-6 (LG 15-2) a. Suppose a 65-year-old person wants to purchase an annuity from an...

Problem 15-6 (LG 15-2) a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $22,000 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and would be willing to pay 7 percent on the annuity. How much should the insurance company ask this person to pay for the annuity? b. A second 65-year-old person wants the same $22,000 annuity, but this...

Calculating the following: Suppose a 60-year old person wants to purchase an annuity from an insurance...

Calculating the following: Suppose a 60-year old person wants to purchase an annuity from an insurance company that pay $25,000 per year until the end of that person’s life. The insurance company expects this person’s life. The insurance company expects this person to live for 20 more years and would be willing to pay 4.5 percent on the annuity. How much should the insurance company ask the person to pay for the annuity? What if the person is expected to live...

Calculate the following: (LG 15-2) a. What is the amount of the annuity purchase required if...

Calculate the following: (LG 15-2) a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $240,000 for 20 years? Assume that the annuity will earn 7 percent per year. b. Calculate the annual cash flows from a $2.5 million, 20-year fixed-payment annuity earning a guaranteed return of 7 percent per year if payments are to begin at the end of the current year. c. Calculate the annual cash flows from a...

a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would...

a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $20,600 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and would be willing to pay 8 percent on the annuity. How much should the insurance company ask this person to pay for the annuity? b. A second 65-year-old person wants the same $20,600 annuity, but this person is healthier and...

Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay...

Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $21,600 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and would be willing to pay 8 percent on the annuity. How much should the insurance company ask this person to pay for the annuity? $175,131.62 $188,964.27 $154,356.29 $184,884.74

Problem 15-1 (LG 15-2) a. What is the amount of the annuity purchase required if you...

Problem 15-1 (LG 15-2) a. What is the amount of the annuity purchase required if you wish to receive a fixed payment of $230,000 for 20 years? Assume that the annuity will earn 10 percent per year. b. Calculate the annual cash flows (annuity payments) from a fixed-payment annuity if the present value of the 20-year annuity is $2 million and the annuity earns a guaranteed annual return of 10 percent. The payments are to begin at the end of...

Calculate the future value of the following annuity streams: (LG 2-9) a. $5,000 received each year...

Calculate the future value of the following annuity streams: (LG 2-9) a. $5,000 received each year for five years on the last day of each year if your investments pay 6 percent compounded annually. b. $5,000 received each quarter for five years on the last day of each quarter if your investments pay 6 percent compounded quarterly. c. $5,000 received each year for five years on the first day of each year if your investments pay 6 percent compounded annually....

A 60-year old person buys a 25-year term annuity in arrears contract for a single upfront...

A 60-year old person buys a 25-year term annuity in arrears contract for a single upfront premium of $1,000,000. Interest earnt by the insurance company is assumed to be 5% over the first 10 years of the contract and then 4% for the remaining term. The amount paid in the first 10 years is two-thirds of the amount paid in the remaining 15 years. Find out the amount paid in year 1 of the contract. Assume that select mortality applies...

John is a sedentary 60-year-old male who wants to lose 15 pounds. His usual diet is...

John is a sedentary 60-year-old male who wants to lose 15 pounds. His usual diet is moderate in protein, some vegetables like potatoes and carrots, and whole grains and cereals. He’s decided that to lose weight, he’ll cut down on carbohydrates in his diet, and increase the protein content. However, John doesn’t want to give up his Starbuck’s caramel latte in the morning, so the coffee and two boiled eggs are his usual breakfast. His favorite lunch is a cheese...

Tina wants to purchase an annuity that should be paid 30 times at the beginning of each year.

Tina wants to purchase an annuity that should be paid 30 times at the beginning of each year. The nominal APR is 6% ,compound monthly and 3% annual inflation rate. If the present value is $60000.Find the first and last payment.

Question