Calculate the first annuity payment from the SPDA for Peter, assuming he starts the annuity as scheduled
Question:
Calculate the first annuity payment from the SPDA for Peter, assuming he starts the annuity as scheduled (October 1, 2017).
Economic Information
- They expect inflation to average 3% (consumer price index) annually over both the short and long term.
- They expect returns of 11% annually on the S&P 500 Index. 90-day T-bills are currently yielding 2%.
- Current mortgage rates are 4.25% for a fixed 15-year mortgage and 6% for a fixed 30-year mortgage.
- Mortgage closing costs are expected to be 3% of any mortgage.
Peter’s SPDA
The SPDA was acquired on December 31, 1981, for $79,602. The current fair market value is $332,403.
Contract had back-end surrender charges of 4.5% for the first seven years.
Currently, the earnings rate is 6% compounded quarterly.
The annuity start date is October 1, 2017, and will consist of quarterly annuity payments made as an annuity due over Peter’s life (Peter’s life expectancy is 25 years as of October 1, 2017).
Patricia is the named beneficiary if Peter dies before the annuity start date.
Statistics The Exploration & Analysis of Data
ISBN: 978-1133164135
7th edition
Authors: Roxy Peck, Jay L. Devore