Question

Present Value of Annuity Due 7. After consulting with your financial advisor, you figured that you need $100,000 per year for your living during 20 years of the retirement period. You consider buying an annuity contract which will pay $100,000 at the beginning of every year. Assuming a rate of return of 5%, how much do you need today to buy the ordinary annuity contract? a. $1,308,532 8. After consulting with your financial advisor, you figured that you need $100,000 per year for your living during 30 years of the retirement period. You consider buying an annuity contract which will pay $100,000 at the beginning of every year. Assuming a rate of return of 5%, how much do you need today to buy the ordinary annuity contract? a. $1,614,107

Answer 1

Amount required today is equal to present value of withdrawals

= 100,000*Present value annuity due factor(5%, 20 years)

= 100,000*13.08532

= $1,308,532

8.Amount required = 100,000*PVAD(5%, 30 years)

=100,000*16.14107

= $1,614,107

Note: Factor values can be found in present value annuity due table