Question

Mary Welch is retiring this year and wishes to set up an annuity for 20 years...

  1. Mary Welch is retiring this year and wishes to set up an annuity for 20 years of her retirement. MetLife will pay her 3.60% on that annuity, and she will fund it with $400,000. What will be her quarterly income from the annuity?
  2. If she wants $9,000 per quarter, what must she put into the annuity, to the nearest dollar?
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Homework Answers

Answer #1

We can use the present value of an annuity formula:


Where,
PVA = Present value of the annuity
A = Annuity
i = Interest rate in decimal form (i.e 3.6% = 0.036)
n = Number of years
a = Number of payments in a year

Therefore,

You can round it off to $7,036

If she wants $9,000, then multiply it with the factor we already calculated above, i.e 56.8531

Therefore,

Therefore, She must put in $511,678 to receive $9,000 per quarter.

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