If an insurance company offers you annuity payments of $45,000 per year for the first 12 years of retirement and $52,000 per year for the next 12 years

If an insurance company offers you annuity payments of $45,000 per year for the first 12 years of retirement and $52,000 per year for the next 12 years, what would you be willing to pay for this annuity if you have a required rate of return of 6%? Assume beginning of year payments

Expert Solution

The question is based upon time value of money.
Step-1:Present value of annuity for 12 years

Present value	=	Annuity * Present value of annuity of 1
	=	$ 45,000.00	*	8.886874577
	=	$ 3,99,909.36

Working:

Present value of annuity of 1	=	((1-(1+i)^-n)/i)*(1+i)		Where,
	=	((1-(1+0.06)^-12)/0.06)*(1+0.06)		i	6%
	=	8.886874577		n	12

Step-2:Present value of annuity for next 12 years

Present value	=	Annuity * Present value of annuity of 1*Present value of 1
	=	$ 52,000.00	*	8.886874577	*	0.496969
	=	$ 2,29,658.23

Working:

Present value 1	=	(1+0.06)^-12		Where,
	=	0.496969364		i	6%
				n	12
Step-3:Value of annuity

Value of annuity is the present value of future annuity payments.

So, Value of annuity	=	$ 3,99,909.36	+	$ 2,29,658.23
	=	$ 6,29,567.58

ekkarill92 answered 2 years ago

An insurance company offers a retirement annuity that pays $100,000 per year for 15 years, growing...

An insurance company offers a retirement annuity that pays $100,000 per year for 15 years, growing at an “inflation-compensator” rate of 3%, and sells for $806,070. What is the interest rate? Show your work.

Suppose that an insurance company offers to pay you an annuity of $5,000 per year for...

Suppose that an insurance company offers to pay you an annuity of $5,000 per year for 5 years in exchange for $16,000 today. What is the return in this investment measured in percentage terms ? ( This is an ordinary annuity. Round to two decimal places. )

A 12-year annuity of $225 monthly payments begins in 7 years (the first payment is at...

A 12-year annuity of $225 monthly payments begins in 7 years (the first payment is at the end of the first month of year 7, so it's an ordinary annuity). The appropriate discount rate is 8%, compounded monthly. What is the value of the annuity 5 years from today? $20,786.13 $15,109.87 $17,722.18 $16,363.98

An insurance company is trying to sell you a retirement annuity. The annuity will give you...

An insurance company is trying to sell you a retirement annuity. The annuity will give you 20 payments with the first payment in 12 years when you retire. The insurance firm is asking you to pay $50,000 today. If this is a fair deal, what must the payment amount be (to the dollar) if the interest rate is 8 percent? please show in excel

You are attempting to price a 25 year annuity due for your insurance company. Payments of...

You are attempting to price a 25 year annuity due for your insurance company. Payments of $3,500 for this annuity due start at the beginning of each year. What is the lowest price your company should offer show all your works

Annie receives an annuity of $45,000, payable once every 3 years for the next 21 years....

Annie receives an annuity of $45,000, payable once every 3 years for the next 21 years. The first payment occurs exactly 3 years from today. The required rate of return is 5%. Calculate the present value of this annuity. (Round to 2 decimals)

You receive an annuity immediate for 20 years, where for the first 10 years, payments are...

You receive an annuity immediate for 20 years, where for the first 10 years, payments are 1000 and then starting at the end of the 11th year increase by 10% (so the payment at the end of the 11th year is 1100. Find the accumulated value of the annuity if effective annual interest i = 7%.

A 12-year annuity pays $1,400 per month, and payments are made at the end of each...

A 12-year annuity pays $1,400 per month, and payments are made at the end of each month. The interest rate is 11 percent compounded monthly for the first six years and 10 percent compounded monthly thereafter. What is the present value of the annuity?

You are offered a 12-year annuity of $10,000 annual payments. However, the annuity begins in 8...

You are offered a 12-year annuity of $10,000 annual payments. However, the annuity begins in 8 years (you will not receive any payments for 8 years, but will then receive $10,000 at the end of each year for 12 years. If the discount rate is 5% per year (compounded annually), what is the current value of the annuity?

An insurance agent is trying to sell you an annuity, that will provide you with $19,800 at the end of each year for the next 30 years.

Value of a retirement annuity Personal Finance Problem An insurance agent is trying to sell you an annuity, that will provide you with $19,800 at the end of each year for the next 30 years. If you don't purchase this annuity, you can invest your money and earn a return of 7%.What is the most you would pay for this annuity right now?Ignoring taxes, the most you would pay for this annuity is $______. (Round to the nearest cent.)

Question