Question: Luke invests $200,000 in an annuity contract. The annuity will pay $10,000 per year as long as Luke is alive. Based on the applicable mortality

Luke invests $200,000 in an annuity contract. The annuity will pay $10,000 per year as long as Luke is alive. Based on the applicable mortality tables, Luke's estimated life expectancy is 25 years.

a) What is the tax treatment of the $10,000 annual payment to Luke?

b)What would happen if Luke died in year 16? Assume he receives no payment in the year of death.

c) Assume Luke lives beyond the 25 year life expectancy predicted for him by the mortality tables. What are the tax consequences of his "luck" in cheating death?

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