Question: a . Suppose a 6 5 - year - old person wants to purchase an annuity from an insurance company that would pay $ 2

a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $21,600 per year until the end of that persons life. The insurance company expects this person to live for 15 more years and would be willing to pay 8 percent on the annuity. How much should the insurance company ask this person to pay for the annuity?
b. A second 65-year-old person wants the same $21,600 annuity, but this person is healthier and is expected to live for 20 more years. If the same 8 percent interest rate applies, how much should this healthier person be charged for the annuity?
c. In each case, what is the new purchase price of the annuity if the distribution payments are made at the beginning of the year?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

All views expressed in this paper are those of the authors and do not necessarily represent the views of the Hellenic Observatory or the LSE George Alogoskoufis Greeces Sovereign Debt Crisis:...

Q:

Calculate the following: a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $ 20,000 per year until the end of that persons life. The insurance...

Q:

Construct a simple MAC code, and apply it to the driven lid cavity problem described in Chapter 10.As a consideration staff part, I encourage him to hold patient to the extensive variety of different...

Q:

Using the framework of the marketing mix, appraise the marketing tactics of Boo.com in the areas of Product, Pricing, Place, Promotion, Process, People and Physical Evidence.

Q:

From inception of operations to December 31, 2006, Harris Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 2% of credit sales;...

Q:

6.12 Buying on eBay You are watching two items posted for sale on eBay and bid $30 for the first and $20 for the second item. You estimate that you are going to win the first bid with probability 0.1...

Q:

To what extent is the information reliable and valid?

Q:

Show that, in the Keynesian DMP model, if the wage is judged to be inefficiently high, so that unemployment is inefficiently high, the government can pay a subsidy to firms that corrects the problem....

Q:

zel yapm makineler reten irket, mterilerden sat siparilerini alma srecinde rutin olarak olduka yksek telefon maliyetlerine maruz kalmaktadr. Aadakilerden hangisi bu maliyetin doru bir snflandrmasdr?...

Q:

In Situational Leadership, what does it mean to "match" leadership style to the situation? Group of answer choices Focusing only on the task, not the follower Using the same leadership style for all...

Q:

W A planar wall (kw = 10- mK' , Lw = 0.5 m) is insulated on one side (q(0) = 0), with a known temperature on both sides (T(0) = 200C, T(L) = 50C). You know that the temperature profile is as follows:...

Q:

A county government hires lawyers to defend itself in lawsuits. The local government provides its legal staff with an office building. The table below shows how many cases can be handled with...

Q:

We are at the halfway point of this course and nearly through your time with SDI. It is the perfect time to pause and reflect. Reflect upon the learning experiences you have had so far in your SDI...

Q:

You are a project manager at Unisa Mining Solutions (UMS) and you are in a fairly good mood. Your firm develops systems to help miming firms reduce their exploration costs, and you have just returned...

Q:

For the following data, draw (by hand) the histograms for X1 and X2 and the scatterplot for X1 versus X2. Which variable(s) do think is (are) normal? Explain. X1 X2 3.9 2.5 2.7 5.1 3.4 5.6 3.3 7 3.4...

Q:

yellow submarine co obtained authorization to issue 20 year bonds with a face value of $10 million. The bonds are dated May 1, 2023 and have a contract rate of interest of 8%. They pay interest on...

Q:

You have accepted the engagement of auditing the financial statements of the C. Reis Company, a small manufacturing firm that has been your auditee for several years. Because you were busy writing...

Q:

Your client, Meg, asked you several questions about her balance sheet. She doesnt understand how the assets, liabilities and net worth are related. Which of the following statements is true? a. Net...

Q:

Determine and select the best risk management alternatives using the risk management decision chart for individuals.

Q:

Which of the following statements concerning income and expenses listed on the Income Statement is correct? a. Charitable contributions are always a discretionary expense. b. Reinvested dividends is...