Considering the purchase of pension annuity

Assignment Help Financial Management

Reference no: EM13939325

You are 65 years old and are considering the purchase of a pension annuity that would provide annual income of 100000/a_65 starting immediately. Your alternative is to invest the $100,000 in a mutual fund earning a random return g (where E[g] = 9% annually and SD = 20%) and to withdraw c each year; this is called self annuitization. Assume that the force of mortality is constant at X = 3.67%. What is the probability you will run out of money while you are still alive?

Reference no: EM13939325

Questions Cloud

Fundamental financing problem in international trade : What is net working capital? Why should it be considered an investment that a firm must make to increase its future profitability? What is the fundamental financing problem in international trade?

Find the probability that it will be able to give a dividend : Volcker Company follows the residual theory of dividends. It has 8 million shares of common stock, and it maintains its optimal debt/assets ratio at 25%. Its EBIT next year is expected to be $25 million, with a standard deviation of $5 million. Find ..

Which leverage ratio is better : Eccles Company has beta 1.7, debt/assets ratio 20%, and tax rate 34%. The cost of debt for Eccles is 9%, and of equity 15%. The riskless rate is 4%. Find the WACC of Eccles. If its debt/assets ratio is increased to 25% while its cost of debt remains ..

Find the required rate of return for hamlin in new venture : Hamlin Pharmaceuticals has $10 million in debt and $70 million in equity. Its tax rate is 35%, cost of debt 6%, and beta 1.5. The riskless rate is 3% and the expected return on the market 13%. Hamlin would like to start a newspaper using its existing..

Considering the purchase of pension annuity : You are 65 years old and are considering the purchase of a pension annuity that would provide annual income of 100000/a_65 starting immediately. Your alternative is to invest the $100,000 in a mutual fund earning a random return g (where E[g] = 9% an..

What is the present value of this building tax shields : A local engineering firm just bought a new office building (CCA=4%) for $500,000. Useful life of 30 years is expected with no salvage value. If tax rate is 40%, and required rate is 10%, then what is the present value of this building's tax shields?

What effect does leasing have on firms capital structure : Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several online data services and then either displays the informati..

Replacement analysis-what is amount of initial cash flow : Replacement Analysis The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $80,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $8,000 per year. what is ..

User Account

All Pages