A deferred annuity is purchased with a lump sum amount of $308,273.17. Suppose money is worth...

A deferred annuity is purchased with a lump sum amount of $308,273.17. Suppose money is worth 5% compounded quarterly, and 13 years after the 5 year deferral period, the account is empty. Use this information to compute how much the annuity will pay per quarter after the deferral period.

Expert Solution

Future value of lumpsum is:

Future value	FV=	PV * (1+rs/m)^mN


Present value	PV=	308,273
Stated rate of interest	rs=	5.00%
Number of years	N=	5
Frequency of compounding per year	m=	4

Future value	FV=	308273.17 (1+ 0.05/4)^(54)

	FV=	395,217.6815

Payment per quarter is:

	Annuity payment=	P/ [ [1- (1+r)-n ]/r ]


P=	Present value	395,217.68
r=	Rate of interest per period
	Rate of interest per annum	5.0%
	Payments per year	4.00
	Rate of interest per period	1.250%




n=	number of payments:
	Number of years	13
	Payments per year	4.00

	number of payments	52


	Annuity payment=	395217.68/ [ (1- (1+0.0125)^-52)/0.0125 ]

	Annuity payment=	10,381.96

Payment per quarter is $10,381.96

Please rate.

jeff jeffy answered 2 years ago

1)You purchase an annuity investment that pays you a lump sum amount of $289,284 at the...

1)You purchase an annuity investment that pays you a lump sum amount of $289,284 at the end of the term. You must make $20,000 quarterly payments until the end of the term. If you earn an interest rate of 2%, how many of these quarterly payments must you make? 2) A bank lends money to a firm on 01/01/2010. According to the lending agreement, the bank will receive the following payments: 06/30/2010 - $2,300,000 12/31/2010 - $1,300,000 06/30/2011 - $5,700,000...

If you were to win the lottery, would you take the lump sum or the annuity?...

If you were to win the lottery, would you take the lump sum or the annuity? Either way, how would you invest your money? Would your strategy turn you into a “Barbara Corcoran or Michael Strahan” type person or a “Mike Tyson or 50 Cent?”

If you won the lottery should you take a lump sum or an annuity? Why?

Explain how to compare the payouts (lump-sum and annuity) and evaluate which is a better financial...

Explain how to compare the payouts (lump-sum and annuity) and evaluate which is a better financial choice. Specifically, what discount rate equates the gross annual annuity payments to the present value of the lump sum cash option? What happens to the attractiveness of each option as the relevant discount rate changes? What do you see as a reasonable hurdle rate, i.e., an investment ‘hurdle rate’ whereby if you take the lump sum you can reliably expect to earn this return...

Using your Present Value for a Lump Sum, Present Value for an Annuity, Future Value of...

Using your Present Value for a Lump Sum, Present Value for an Annuity, Future Value of a Lump Sum and Future Value of an Annuity, create four separate problems (with solutions) that use each table. Therefore, you need one problem for each table but four problems in total. Please include formulas and explanations where needed. The tables aren't provided because it is however you want to do it (however, it does include the period and interest rate). (i.e) Can be...

If money is worth j4 = 6% determine the sum of money due at the end...

If money is worth j4 = 6% determine the sum of money due at the end of 15 years equivalent to $1000 due at the end of 6 years.

Western purchased land and a building for the lump sum of $3,000,000. To maximize their tax...

Western purchased land and a building for the lump sum of $3,000,000. To maximize their tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation based on assessed value would have been 70% to the building and 30% to the land. 1. What impact(s) will these actions have on the company’s financial statements? Be sure to discuss the balance sheet and the income statement separately, and be specific...

A lump-sum election allows a taxpayer to: Elect ten-year averaging on the lump-sum payment. Evenly allocate the lump-sum...

A lump-sum election allows a taxpayer to: Elect ten-year averaging on the lump-sum payment. Evenly allocate the lump-sum benefit over the current year and the prior years. Include the social security benefits received for prior years in current-year benefits. Treat a lump-sum social security benefit as if the benefits for prior years had been received in

What lump sum of money must be deposited into a bank account at the present time...

What lump sum of money must be deposited into a bank account at the present time so that $550 per month can be withdrawn for four years, with the first withdrawal scheduled for five years from today? The interest rate is 3/4% per month. (Hint: Monthly withdrawals begin at the end of the month 60.)

Find the lump sum deposited today that will yield the same total amount as payments of...

Find the lump sum deposited today that will yield the same total amount as payments of 11,000 at the end of each year for 13 years, at an interest rate of 4% compounded annually.

Question