Choosing the best annuity Personal Finance Problem Raina Herzig wishes to choose the best of four annuities available to her. In each case, in exchange for paying a lump sum today, she will receive equal, end-of-year cash payments for a specified number of years. She considers the annuities to be equally risky and is not concerned about their differing lives. Her decision will be based solely on the rate of return she will earn on each annuity. The key terms of the four annuities are shown in the following table, a. Calculate the rate of return on each of the four annuities Raina is considering. b. Given Raina's stated decision criterion, which annuity would you recommend? ... a. The rate of return, r, on annuity A is%. (Round to two decimal places.) The rate of return, r, on annuity B is %. (Round to two decimal places.) The rate of return, r, on annuity C is %. (Round to two decimal places.) The rate of return, r, on annuity D is %. (Round to two decimal places.) b. Given Raina's stated decision criterion, which annuity would you recommend? (Select the best answer below.) OA. Annuity A

Choosing the best annuity Personal Finance Problem Raina Herzig wishes to choose the best of four annuities available to her. In each case, in exchange for paying a lump sum today, she will receive equal, end-of-year cash payments for a specified number of years. She considers the annuities to be equally risky and is not concerned about their differing lives. Her decision will be based solely on the rate of return she will earn on each annuity. The key terms of the four annuities are shown in the following table, a. Calculate the rate of return on each of the four annuities Raina is considering. b. Given Raina's stated decision criterion, which annuity would you recommend? ... a. The rate of return, r, on annuity A is%. (Round to two decimal places.) The rate of return, r, on annuity B is %. (Round to two decimal places.) The rate of return, r, on annuity C is %. (Round to two decimal places.) The rate of return, r, on annuity D is %. (Round to two decimal places.) b. Given Raina's stated decision criterion, which annuity would you recommend? (Select the best answer below.) OA. Annuity A

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 43P

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Jill Chewwishes to choose the best of four immediate retirement annuities available toher. In each case, in exchange for paying a single premium today, she willreceive equal annual end-of-year cash benefits for a specified number of years.She considers the annuities to be equally risky and is not concerned abouttheir differing lives. Her decision will be based solely on the rate of returnshe will earn on each annuity. The key terms of each of the four annuities areshown in the following table. Annuity PremiumPaid Today AnnualBenefit Life(years) A $30,000 $3,100 20 B 25,000 3,900 10 C 40,000 4,200 15 D 35,000 4,000 12 a. Calculate to the nearest 1 percent the rateof return on each of the four annuities Jill is considering.b. Given Jillâ€™s stated decision criterion, whichannuity would you recommend?
On the basis of how long she has until retirement and her comfort with investment risk, Chelsea has decided that she wants to allocate the money in her retirement account as follows: 75% to equities, 20% to fixed income, and 5% to cash. If Chelsea assumes that each asset class earns the low end of the historical average rates of return provided below, what overall rate of return would she expect to earn over the long term? Equities: 8%-12% Fixed Income: 4% - 7% . Cash: 2% - 5% . O 6.90% O 5.60% O 10.65% O 7.75% 4.67%
(Click on the into a spreadsheet.) Annuity B C Premium paid today $24.098.32 $22,274.30 $31,240.13 $30,150.95 Annual benefit $3,200 $4100 $4,000 $4,200 Life (years) 20 10 15
Bobbi Proctor does not want to“gamble”on Social Security taking care of her inretirement. Hence she wants to begin to plan now for retirement. She has enlisted the services of Hackney Financial Planning to assist her in meeting her goals. Proctor has determined that she would like to have a retirement annuity of$200,000 per year, with the first payment to be received 36 years from now at theend of her first year of retirement. She plans a long, enjoyable retirement of about 25 years. Proctor wishes to save $5,000 at the end of each of the next 15 years, and an unknown, equal end-of-period amount for the remaining 20 years before she begins her retirement. Hackney has advised Proctor that she can safely assume that all savings will earn 12 percent per annum until she retires, but only 8 percent thereafter. How much must Proctor save per year during the 20 years preceding retirement?
Suppose that Kate is 45 years old and has no retirement savings. She wants to begin saving for retirement, with the first payment coming one year from now. She can save $20,000 per year and will invest that amount in the stock market, where it is expected to yield an average annual return of 5.00% return. Assume that this rate will be constant for the rest of her's life. In short, this scenario fits all the criteria of an ordinary annuity. Kate would like to calculate how much money she will have at age 60. Use the following table to indicate which values you should enter on your financial calculator. For example, if you are using the value of 1 for N, use the selection list above N in the table to select that value. Input Keystroke Output N Input Keystroke N Output I/Y Using a financial calculator yields a future value of this ordinary annuity to be approximately Kate would now like to calculate how much money she will have at age 65. Input Keystroke N Output Use the following table…
Using the Time Value of Money for Retirement Planning. Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account?
A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals.            Years until retirement:     30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. If she starts making deposit amounts in one year and her deposits increase at the inflation rate of 3% each year until she makes her last deposit on the day she retires, what amount must she initially deposit to be able to make the desired withdrawals at retirement?
A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals.            Years until retirement:     30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. How much does she need to have in retirement at the end of year 30 in order to receive her retirement payments assuming that these retirement payments continue to increase at 3% per year throughout her retirement?
A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retirement spending goals.            Years until retirement:     30 Amount to withdraw each year: $120,000 Years to withdraw in retirement: 25 Interest rate: 7.5% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. Assume that the inflation rate is 3%. Consequently, when your friend retires she will want to withdraw $120,000 each year in today’s dollars. If she starts making deposit amounts in one year and makes equal deposit amounts each year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
This is a classic retirement problem. A friend is celebrating her birthday and wants to start saving for her anticipated retirement. She has the following years to retirement and retire- ment spending goals: Years until retirement: Amount to withdraw each year: Years to withdraw in retirement: Interest rate: 30 $90,000 20 8% Because your friend is planning ahead, the first withdrawal will not take place until one year after she retires. She wants to make equal annual deposits into her account for her retirement fund. a. If she starts making these deposits in one year and makes her last deposit on the day she retires, what amount must she deposit annually to be able to make the desired withdrawals at retirement?
An individual (with log-utility) wants to maximize her happiness level over her adolescence and adult periods. At the age 18 the individual inherits one hundred thousand dollars and must decide how much to consume now (when she is young, period t) and how much to save for her adulthood (period t +1) to maximize the sum of utility over different life stages. The bank will pay interest rate of 5% of every dollar she deposits. The individual discounts future utilities at ß = 0.8. What is the optimal consumption in the adolescent period? 55555.56 55561.55 55558.55 55564.56
I need help working this problem out. Figuring out what table to use, whether to use: compound value, present value, amount of annuity, present value of annuity, sinking fund value? Please explain in detail each step. Nina deposits $3400 into a savings account earning simple interest at 6.3% annually. She intends to leave the money in the bank for three years. How much money, including both principal and interest, can she withdraw at the end of this time?