Question

Present Value of Ordinary Annuity 4. 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 end of every year. Assuming a rate of return of 5%, how much do you need today to buy the ordinary annuity contract? a. $1,246,221 5. 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 end of every year. Assuming a rate of return of 5%, how much do you need today to buy the ordinary annuity contract? a. $1,537,245

Answer 1

4)

a)

Px[1-(1:(1+r)An)-r| Amount needed Here, AInterest rate per annum 5% BNumber of years C Number of compoundings per per annum A:C Interest rate per period (r) BxC Number of periods (n) Payment per period (P) 20 1 5% 20 100,000 $1,246,221 Amount needed $ 100000x(1-(1(1+5%)^20)): 5%

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