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Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $200,000 at age...

Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $200,000 at age of 65, the firm will pay professor $1,500/month until death. If the professor's remaining life expectancy is 20 years, what is the monthly rate on this annuity? What is the effective annual rate? For the same initial payment of $200,000 at age of 65 and live for another 20 years, if the monthly rate is 0.5%, how much monthly payment the professor could receive?

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Answer #1

Monthly rate on annuity is 0.55%

Effective annual rate:

= (1+0.55%)^12-1

= 6.78%

Monthly he could receive $1,432.86

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