Emerson Cammack wishes to purchase an annuity contract that will pay him $7,000 a year for the rest of his life. The Philo Life Insurance Company figures that his life expectancy is 20 years, based on its actuary tables. The company imputes a compound annual interest rate of 6 percent in its annuity contracts. 

a. How much will Cammack have to pay for the annuity? 

b. How much would he have to pay if the interest rate were 8 percent?

Answer rating: 100% (QA)

To calculate the cost of an annuity you can use the present value formula for ... View the full answer