Question

QUESTION 9

Part A: Your father is about to retire, and he wants to buy an annuity that will provide him with $100,000 of income per year for 20 years, beginning a year from today. The going rate on such annuities is 4.0%. How much would it cost him to buy such an annuity today (in $’000s)?

a. $1,059.4

b. $1,147.0

c. $1,246.2

d. $1,359.0

e. $1,487.7

Part B: Your father is about to retire, and he wants to buy an investment that will provide him with $100,000 of income per year for 20 years, beginning a year from today. In addition, on the 20th anniversary (when the last payment of $100,000 occurs), he wants to withdraw a lump-sum of $250,000 (in addition to the last receipt of $100,000). The going rate on such annuities is 4.0%. How much would it cost him to buy such an annuity today (in $’000s)?

a. $1,124.0

b. $1,224.9

c. $1,340.4

d. $1,473.1

e. $1,626.2

Answer 1