Question Details

Your father is about to retire, and he wants to buy an annuity 



1.	Your father is about to retire, and he wants to buy an annuity that will provide him with $85,000 of income a year for 25 years, with the first payment coming immediately.  The going rate on such annuities is 5.15%.  How much would it cost him to buy the annuity today?

a.	$1,063,968
b.	$1,119,966
c.	$1,178,912
d.	$1,240,960
e.	$1,303,008
	
2.	You inherited an oil well that will pay you $25,000 per year for 25 years, with the first payment being made today.  If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?

a.	$284,595
b.	$299,574
c.	$314,553
d.	$330,281
e.	$346,795
	
3.	Sam was injured in an accident, and the insurance company has offered him the choice of $25,000 per year for 15 years, with the first payment being made today, or a lump sum.  If a fair return is 7.5%, how large must the lump sum be to leave him as well off financially as with the annuity?

a.	$225,367
b.	$237,229
c.	$249,090
d.	$261,545
e.	$274,622
	
4.	What- the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?

a.	$8,509
b.	$8,957
c.	$9,428
d.	$9,924
e.	$10,446
	
5.	Suppose you inherited $275,000 and invested it at 8.25% per year.  How much could you withdraw at the end of each of the next 20 years?

a.	$28,532
b.	$29,959
c.	$31,457
d.	$33,030
e.	$34,681




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