1. If you have $675,000 saved for retirement how many years will it last if you

Question

1. If you have $675,000 saved for retirement how many years will it last if you earn an annual interest rate of 7% and withdraw $46,000 at the beginning of each year? A) 14 B) 48 C) you will never run out of money D) 23 E) 52
2. Assume you won $60 million in the lottery. You were given the option of receiving twenty $3 million annual payments, with the first payment due today or taking a $37.1 million lump sum today. You want to compare the PV annunity assuming you can invest the money at a 6.5% annual rate and which option is best? A) $34,409,764; take the lump sum B) $35,204,131; take the lump sum C) $34,409,764; take the annuity D) $38,662,810; take the annuity E) $36,474,349; take the lump sum

1. If you have $675,000 saved for retirement how many years will it last if you earn an annual interest rate of 7% and withdraw $46,000 at the beginning of each year? A) 14 B) 48 C) you will never run out of money D) 23 E) 52
2. Assume you won $60 million in the lottery. You were given the option of receiving twenty $3 million annual payments, with the first payment due today or taking a $37.1 million lump sum today. You want to compare the PV annunity assuming you can invest the money at a 6.5% annual rate and which option is best? A) $34,409,764; take the lump sum B) $35,204,131; take the lump sum C) $34,409,764; take the annuity D) $38,662,810; take the annuity E) $36,474,349; take the lump sum

A) 14 B) 48 C) you will never run out of money D) 23 E) 52
2. Assume you won $60 million in the lottery. You were given the option of receiving twenty $3 million annual payments, with the first payment due today or taking a $37.1 million lump sum today. You want to compare the PV annunity assuming you can invest the money at a 6.5% annual rate and which option is best? A) $34,409,764; take the lump sum B) $35,204,131; take the lump sum C) $34,409,764; take the annuity D) $38,662,810; take the annuity E) $36,474,349; take the lump sum

Explanation / Answer

Hi,

Please find the correct answer as follows:

1) 675000 = 46000*(1-(1+7%)^(-no. of years))/(7%)

=> no. of years = infinite

Hence, the correct option is (C), you will never run out of money

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2) We need to calculate present value of annuity due:

Present value = 3000000+3000000*(1-(1+6.5%)^(-19))/6.5%

=$35204130.66

Since the present value of annuity is less than the lump sum payment, we should choose $37.1 million paymnet today

Hence. option (B) is the correct answer

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