Question

# You deposit \$11,100 annually into a life insurance fund for the next 10 years, at which...

You deposit \$11,100 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 11 if you assume an interest rate of 8 percent for the whole time period? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

The first step is to calculate the future value of deposits made for the next 10 years. The future value is found using the future value of annuity equation

The lump sum amount at the end of next 10 years = \$ 160,800.8434

Using the lump sum payment, the annual payment that can be expected to be received for the next years is calculated using present value of annuity equation.

Solving for the value of A in the above equation,

The annual payment expected to receive for the next 20 years = \$ 16377.92

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