Question

ou deposit $10,900 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 11 if you assume an interest rate of 5 percent for the whole time period?

Answer 1

First, let's find the FV of the annual deposits

N = 10

I/Y = 5

PV = 0

PMT = -10,900

CPT FV

FV = 137,099.0286

With this as the present value, now let's find the PMT for 20 years

N = 20

I/Y = 5

PV = -137,099.0286

FV = 0

CPT PMT

PMT = 11,001.18076

You would expect to receive an annual payment of $11,001.18076 for the next 20 years starting from year 11.