Question

Assume that Kate paid $90,000 for a $600-a month pure annuity. She dies after receiving the payments for four years. How much did she receive in annuity payments? How much will a successor beneficiary receive in cash payment at her death?

Assume that Kate paid $90,000 for a $400-a month installment-refund annuity. She dies after receiving the payments for five years. How much will a successor beneficiary receive in cash payment at her death? For how many more years will a successor beneficiary be receiving the monthly payments?  

Answer 1

a)Amount receive by kate :600*12*4 = $ 28800

successor beneficiary receive in cash payment at her death = 0 as only kate(annuitant) is entitle to receive the annuity and not payable to beneficiary.(inc ase of pure annuity)

b)How much will a successor beneficiary receive in cash payment at her death : Total payment -amount received by kate

     = 90000- [400*12*5]

        = 90000- 24000

         = $ 66000

Number of years successor neneficiary be receiving the monthly payment = 66000/4800 = 13.75 years [13 years and9 months)

** annual payment : 400*12 =4800