Question

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 $20,900 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 5 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 $20,900 annuity, but this person is healthier and is expected to live for 20 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 new purchase price of the annuity if the distribution payments are made at the beginning of the year?

Homework Answers

Answer #1

I have answered the question below

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

Part A

Lumpsum (PV) = Annuity * pvifa (5%,15years) = 20900*((1-((1.05^-15)))/5%) =

216934.85

Part B

Lumpsum (PV) = Annuity * pvifa (5%,20years) = 20900*((1-((1.05^-20)))/5%) =

260460.20

Part C

1. Lumpsum (PV) = Annuity *( pvifa (5%,15years) *(1.05)) =20900*(((1-((1.05^-15))/5%)*1.05)) =

227781.60

2. Lumpsum (PV) = Annuity * (pvifa(5%,20years) *(1.05)) = 20900*(((1-((1.05^-20))/5%)*(1.05)) =\

273483.21
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Taxpayer (“T”) a 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company...
Taxpayer (“T”) a 59 year-old calendar year individual taxpayer purchased an annuity from an insurance company for $100,000 in 2019. The terms of the annuity were that the company would pay T $5,000 a year to T for the rest of T’s life. How much income will T include in T’s personal income tax return as a result of receiving the $5,000 payment in 2020?   _____________ In 2050? ______________
Larry purchased an annuity from an insurance company that promises to pay him $6,000 per month...
Larry purchased an annuity from an insurance company that promises to pay him $6,000 per month for the rest of his life. Larry paid $630,720 for the annuity. Larry is in good health, and he is 72 years old. Larry received the first annuity payment of $6,000 this month.How much of the first payment should Larry include in gross income?If Larry lives more than 15 years after purchasing the annuity, how much of each additional payment should he include in...
Atlas Insurance wants to sell you an annuity which will pay you $550 per quarter for...
Atlas Insurance wants to sell you an annuity which will pay you $550 per quarter for 30 years. You want to earn a minimum rate of return of 5.0 percent compounded quarterly. What is the most you are willing to pay as a lump sum today to buy this annuity? a.$31,207.66 b. $32,868.16 c. $32,411.57 d. $33,819.39 e. $34,090.57
Rick wants to determine how much you must pay to buy an annuity with a company...
Rick wants to determine how much you must pay to buy an annuity with a company insurance. The annuity consists of cash flows of $ 1,500 to be received at the end of every year for 6 years. The required return is 12% per year, compounded quarterly.
Larry purchased an annuity from an insurance company that promises to pay him $1,500 per month...
Larry purchased an annuity from an insurance company that promises to pay him $1,500 per month for the rest of his life. Larry paid $165,564 for the annuity. Larry is in good health, and he is 72 years old. Larry received the first annuity payment of $1,500 this month. Use the expected number of payments in Exhibit 5-1 for this problem. How much of the first payment should Larry include in gross income?
What is the maximum amount a company would be willing to pay today to purchase a...
What is the maximum amount a company would be willing to pay today to purchase a machine if it is expected to provide annual savings of $10,000 for 10 years and to have a resale value of $25,000 at the end of that period? Assume the business wants to earn 5% on its investment and that the annual savings are realized at year end. Please show all of the factors used in the calculation – PV, I/Y, N, etc. –...
Larry purchased an annuity from an insurance company that promises to pay him $6,000 per month...
Larry purchased an annuity from an insurance company that promises to pay him $6,000 per month for the rest of his life. Larry paid $630,720 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $6,000 this month. Use the expected number of payments in Exhibit 5-1 for this problem. EXHIBIT 5-1 Table for Expected Return Multiple for Ordinary Single-Life Annuity Age at Annuity Starting Date Expected Return Multiple 68...
You are considering the purchase of an investment that would pay you $12,000 per year for...
You are considering the purchase of an investment that would pay you $12,000 per year for Years 1 and 2, $22,000 per year for Years 3 and 4, and $8,000 per year for Years 5 and 6. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, how much would you be willing to pay for this investment?
26. You have received a settlement from an insurance company which will pay you $100,000 per...
26. You have received a settlement from an insurance company which will pay you $100,000 per year for 12 years at the end of each year and J.G. Wentworth wants to buy your annuity. What is JG Wentworth’s annual rate of return (interest rate) if they are willing to pay you $500,000 today? A. 7.56% B. 18.21% C. 16.94% D. Interest rate cannot be calculated.
1a) An insurance company would like to offer theft insurance for renters. The policy would pay...
1a) An insurance company would like to offer theft insurance for renters. The policy would pay the full replacement value of any items that were stolen from the apartment. Some apartments have security alarms installed. Such systems detect a break-in and ring an alarm within the apartment. The insurance company estimates that the probability of a theft in a year is 0.05 if there is no security system and 0.01 if there is a security system (there cannot be more...