1. Recently, Lincoln Benefit Life offered an ordinary annuity that earned 6.25% compounded. A person plans to...
Question:
1. Recently, Lincoln Benefit Life offered an ordinary annuity that earned 6.25% compounded. A person plans to make equal annual deposits into this account for 25 years in order to then make 20 equal annual withdrawals of $25,000, reducing the balance in the account to zero. A. How much must be deposited annually to accumulate sufficient funds to provide for these payments? B. How much total interest is earned during this entire 45-year process? Answer: A. $4,677. 76, B. $383,056
Refer to the previous example. If $2,000 is deposited annually for the first 25 years, how much can be withdrawn annually for the next 20 years? Answer: A. $10,688.87
2. Jane deposits $2,000 annually into an IRA registered savings plan that earns 6.85% compounded annually. The interest earned by the plan is tax free. Due to a change in employment, these deposits stop after 10 years, but the account continues to earn interest until Jane retires 25 years after the last deposit was made. How much is in the account when Jane retires? Answer: $143,785.10
Refer to the previous example. Mary starts an IRA registered savings plan earning the same rate of interest at the time Jane stops making payments to her IRA savings plan. How much must Mary deposit each year for the next 25 years in order to have the same amount at retirement as Jane? Answer: $2,322.73
3. A person makes annual deposits of $1,000 into an ordinary annuity. After 20 years, the annuity is worth $55,000. What annual compound rate has this annuity earned during this 20-year period? Express the answer as a percentage, correct to two decimal places. Answer: 9.64%
How do you get the answer to each question? (show steps for each)
Expert Answer:
Lets break down each of the questions and calculate the answers step by step 1 Question A How much m... View the full answer
