You deposit $7500 annually into a life insurance fund for the next 20 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 21 if you assume an interest rate of 7 percent for the whole time period?
You deposit $7500 annually into a life insurance fund for the next 20 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 21 if you assume an interest rate of 7 percent for the whole time period?
Related questions
| a. | If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount in the retirement fund at the end of year 10? |
| b. | Instead of a lump sum, you wish to receive annuities for the next 20 years (years 11 through 30). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 8 percent during the distribution period? |
| c. | Repeat parts (a) and (b) above assuming earning rates of 7 percent and 9 percent during the deposit period and earning rates of 7 percent and 9 percent during the distribution period. |
| Deposit Period | Value at 10 Years | Distribution Period | Annual payment |
| 7 percent | $ | 7 percent | $ |
| 9 percent | $ | ||
| 9 percent | $ | 7 percent | $ |
| 9 percent | $ |
