Question

You deposit $11,800 annually into a life insurance fund for the next 10 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 11 if you assume an interest rate of 6 percent for the whole time period?

Answer 1

Calculating Value of Deposit at the end of Year 10,

Using TVM Calculation,

FV = [PV = 0, PMT = 11,800, N = 10, I = 0.06]

FV = $155,533.38

Calculating Annual Withdrawal,

Using TVM Calculation,

PMT = [PV = 155,533.38, FV = 0, N = 20, I = 0.06]

PMT = $13,560.11