Lisa, age 39, can buy a deferred annuity that will pay $100 per month beginning

Question

Lisa, age 39, can buy a deferred annuity that will pay $100 per month beginning at age 65 and will continue until her death for a single premium today of $1000. Larry age 37, can buy a deferred annuity that will pay $100 per month beginning at age 65 and will continue until his death for a single premium today of $900. What can be said about the single premium that would be required of Lisa and Larry for a joint and 100 percent survivor annuity that will pay $100 per month beginning at age 65?

a. the cost will be about $1,900,

b. the cost will be between $900 and $1,000,

c. the cost will exceed $1,000,

d. it is impossible to determine anything about the price of the joint annuity because the differing ages of the annuitants would require the use of a mortality table to determine the price.

Explanation / Answer

Answer is d. As to compute the price of the we need the longevity of the two people.

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