In this question, consider that you are 60 years old and considering retirement. An insurance company offers to sell you the following Annuity in exchange for a portion of your IRA: • The Annuity commits to paying you 2,000 per month for the next 20 years, with the first payment to be made beginning one month from today. • Your price of the Annuity is $250,000 paid by you today from your IRA. The insurance company is rated AAA, but the investment is not FDIC insured like bank deposits. What is the expected annual rate of return on this investment? What is the Yield on this investment2 That is what is the-annual expected-rate-of return? From an investment point of view, do you consider this a good investment today? Discuss why, or why not.
In this question, consider that you are 60 years old and considering retirement. An insurance company offers to sell you the following Annuity in exchange for a portion of your IRA: • The Annuity commits to paying you 2,000 per month for the next 20 years, with the first payment to be made beginning one month from today. • Your price of the Annuity is $250,000 paid by you today from your IRA. The insurance company is rated AAA, but the investment is not FDIC insured like bank deposits. What is the expected annual rate of return on this investment? What is the Yield on this investment2 That is what is the-annual expected-rate-of return? From an investment point of view, do you consider this a good investment today? Discuss why, or why not.
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 44P
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Transcribed Image Text:In this question, consider that you are 60 years old and considering retirement. An insurance company
offers to sell you the following Annuity in exchange for a portion of your IRA:
• The Annuity commits to paying you 2,000 per month for the next 20 years, with the first
payment to be made beginning one month from today.
• Your price of the Annuity is $250,000 paid by you today from your IRA.
The insurance company is rated AAA, but the investment is not FDIC insured like bank deposits.
What is the expected annual rate of return on this investment?
What is the Yield-on this investment? That is what is the annual expected rate of return?
From an investment point of view, do you consider this a good investment today? Discuss why, or why
not.
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