Donald Johnson has just given an insurance company $20,000. In return, he will receive an annuity of $1,800 for 20 years. At what rate of return must the insurance company invest this $20,000 in order to make the annual payments?

Donald Johnson has just given an insurance company $20,000. In return, he will receive an annuity of $1,800 for 20 years. At what rate of return must the insurance company invest this $20,000 in order to make the annual payments?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 19P

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Concept explainers

Retirement Income

Retirement income is the income received by the retiring person after retirement. Income can either be paid every month or paid annually. The retiree would get a guaranteed income until their death. Retirement income payment differs from person to person based on their investment type and payment method. Some are paid on a lump-sum basis and some are paid in a regular series with fixed payment or variable cash flow. Retirement income can be created from retirement savings, investment, salary, bonus, and wages from employment. Every working individual should plan their retirement income according to their income goals for the future. The plan should be made by identifying suitable income sources, estimating future expenses, applying a savings plan, and managing risk and assets. The most common age for retirement is between 60-65 years.

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