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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