If the professor’s remaining life expectancy is 20 years, what is the monthly interest rate on this annuity? b. What is the effective annual interest rate? c. If the monthly interest rate is 1.00%, what monthly annuity payment can the firm offer to the retiring professor?

If the professor’s remaining life expectancy is 20 years, what is the monthly interest rate on this annuity? b. What is the effective annual interest rate? c. If the monthly interest rate is 1.00%, what monthly annuity payment can the firm offer to the retiring professor?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6MC: You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years....

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Question

Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $76,000 at age 65, the firm will pay the retiring professor $500 a month until death.

a. If the professor’s remaining life expectancy is 20 years, what is the monthly interest rate on this annuity?

b. What is the effective annual interest rate?

c. If the monthly interest rate is 1.00%, what monthly annuity payment can the firm offer to the retiring professor?

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