Related questions
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Customers buy this product on their 65th birthday when they retire.
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The
annuity will make 20 annual payments of $80,000. -
The first annual payment of $80,000 will occur on the customer’s 68th birthday (customers typically rely on their personal savings to travel for the first few years).
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For this product, Wagon Financial can invest the customers’ money at 12% per annum effective.1.
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What price should Wagon Financial charge for this product?
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Step by stepSolved in 2 steps
Suppose that immediately after making the fifth payment to Joseph as described above, Wagon Financial also implements a new investment strategy which they believe will yield even higher investment returns than the original 12% per annum.
Assuming this to be true, would Wagon Financial need to set aside more or less money than your answer in part f) to be sure that they can afford to make all future payments to Joseph? Justify your answer.
Suppose that Joseph, an existing customer of this product (with the arrangement specified above), has just received the fifth payment of this
Using the prospective method, how much money does Wagon Financial need to have set aside today (immediately after the fifth payment is made) to be sure that they can afford to make all future payments to Joseph?
Suppose that immediately after making the fifth payment to Joseph as described above, Wagon Financial also implements a new investment strategy which they believe will yield even higher investment returns than the original 12% per annum.
Assuming this to be true, would Wagon Financial need to set aside more or less money than your answer in part f) to be sure that they can afford to make all future payments to Joseph? Justify your answer.
Suppose that Joseph, an existing customer of this product (with the arrangement specified above), has just received the fifth payment of this
Using the prospective method, how much money does Wagon Financial need to have set aside today (immediately after the fifth payment is made) to be sure that they can afford to make all future payments to Joseph?
- A company wants to have $30,000 at the beginning of each 6-month period for the next 4 1/2 years. If an annuity is set up for this purpose, how much must be invested now if the annuity earns 6.42%, compounded semiannually? (b) Solve the problem. (Round your answer to the nearest cent.)$ _____arrow_forwardPresent value. Standard Insurance is developing a long-life insurance policy for people who outlive their retirement nest egg. The policy will pay out $200,000 on your 85th birthday. You must buy the policy on your 62nd birthday. The insurance company can earn 9% on the purchase price of your policy. What is the minimum purchase price the insurance company should charge for this policy?arrow_forwardPresent value: Maria Addai has been offered a future payment of $750 two years from now. If she can earn 6.5 percent, compounded annually, on her investment, what should she pay for this investment today? Please use Excel to solvearrow_forward
- What is the present value of a perpetuity that pays $50 annually and has an annual rate of return of 17%? note: round and show your answer to the nearest dollar.arrow_forwardAssume that Social Security promises you $43,000 per year starting when you retire 45 years from today (the first $43,000 will get paid 45 years from now). If your discount rate is 5%, compounded annually, and you plan to live for 17 years after retiring (so that you will receive a total of 18 payments including the first one), what is the value today of Social Security's promise? ... The value today of Social Security's promise is $ the nearest cent.) (Round toarrow_forwardYou are offered an annuity that will pay $5,420 per quarter for 8 years (first payment made today). If you feel that the appropriate discount rate is 13%, what is the annuity worth to you today?arrow_forward
- You want to save $8,000 by November 1, 2024. You plan to make annual deposits. The first deposit will be on November 1, 2019 and the last will be on November 1, 2024. If the account pays 6% annually, then what are the size of your annual deposits?arrow_forwardYou are offered an annuity that will pay $5,420 per quarter for 8 years (first payment made today). If you feel that the appropriate discount rate is 13%, what is the annuity worth to you today?arrow_forwardYour answer is incorrect. Sheridan Company is considering investing in an annuity contract that will return $33,500 annually at the end of each year for 15 years. Click here to view the factor table. What amount should Sheridan Company pay for this investment if it earns an 10% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 25.25.) Sheridan Company should pay $ eTextbook and Media Save for Later SUPP Attempts: 2 of 3 used Submit Answerarrow_forward
- An annuity saleman showed up at your door and gave you the following offer: His company is willing to give you $10 every week for one year if only you gave him $480 now. What is the annual rate of return that you would earn by accepting this offer?arrow_forwardYou are offered an annuity that will pay $14,000 per year for 13 years (the first payment will be made today). If you feel that the appropriate discount rate is 8%, what is the annuity worth to you today? $110,652.86 $300,934.15 $119.505.09 $325,008.88 $242,876.85 4.0arrow_forwardYour retirement policy lets you receive in 35 years equal annual payments of $10,000 for 10 years. The relevant interest rate is 6%. What is its PV? (Hint: this is a two step problem; find what the value of the retirement annuity will be 35 years from now and THEN find the present value of that sum in today’s dollars.arrow_forward
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