You deposit $13,000 annually into a life insurance fund for the next 10 years, a

Question

You deposit $13,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire.

If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount in the retirement fund at the end of year 10? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Instead of a lump sum, you wish to receive annuities for the next 20 years (years 11 through 30). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 8 percent during the distribution period? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Repeat parts (a) and (b) above assuming earning rates of 7 percent and 9 percent during the deposit period and earning rates of 7 percent and 9 percent during the distribution period. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

You deposit $13,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire.

Explanation / Answer

1)

FV of annuity due = c*(((1+ i)^n - 1)/i)*(1 + i )

C = Cash flow per period

i = interest rate

n = number of payments

For I = 8%

FV = 13000*(((1+8/100)^10-1)/(8/100))*(1+8/100)

=203391.34

For I = 7%

FV = 13000*(((1+7/100)^10-1)/(7/100))*(1+7/100)

=192186.79

For I = 9%

FV = 13000*(((1+9/100)^10-1)/(9/100))*(1+9/100)

= 215283.81

2)

FV of annuity due = PV of annuity due

PV of annuity due =C*((1-(1+i)^(-n))/i)*(1+i)

C = Cash flow per period

i = interest rate

n = number of payments

For I = 8%

203391.34 = annual payment*((1-(1+8/1200)^(-20))/(8/1200))*(1+8/1200)

annual payment=10969.05

For I = 7%

192186.79 = annual payment*((1-(1+7/1200)^(-20))/(7/1200))*(1+7/1200)

annual payment=10268.3

For I = 9%

215283.81= annual payment*((1-(1+9/1200)^(-20))/(9/1200))*(1+9/1200)

annual payment =11719.16

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.