Offering the retirement contract

Assignment Help Financial Management

Reference no: EM132050187

Assume you are 25 years old. The IAW insurance company is offering you the following retirement contract (called an annuity): Contribute $2,000 per year for the next 40 years. When you reach 65 years of age, you will receive $30,000 per year for as long as you live. Assume that you believe that the chance that you will die is 10% per year after you will have reached 65 years of age. In other words, you will receive the first payment with probability 90%, the second payment with probability 81%, and so on.

If the prevailing interest rate is 5% per year, all payments occur at year-end, and it is now January 1, is this annuity a good deal?

Reference no: EM132050187

Questions Cloud

Average balance in accounts payable and accounts receivable : What is the company’s average balance in accounts payable and accounts receivable?

According to the sustainable growth model : Grow Now's contribution to retained earnings next year will be __________ according to the sustainable growth model.?

Effective annual interest rate on the lending arrangement : What is your effective annual interest rate on the lending arrangement if you borrow $49 million immediately and repay it in one year?

Effective annual interest rate on lending arrangement : What is the effective annual interest rate on this lending arrangement?

Offering the retirement contract : Assume you are 25 years old. The IAW insurance company is offering you the following retirement contract (called an annuity):

Elimination entry needed to eliminate the gross profit : Prepare the elimination entry needed to eliminate the gross profit that should not be recognized in the consolidated financial statements of December 31, 2016.

Applying the value-at-risk method : Applying the Value-at-Risk Method. You use today’s spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead.

What is the project payback and MIRR : Project K costs $75,000, its expected cash inflows are $10,000 per year for 8 years, What is the project's MIRR? What is the project's payback?

What is the project NPV-IRR and MIRR : Project K costs $70,000, its expected cash inflows are $15,000 per year for 11 years and its WACC is 13%. What is the project's NPV? What is the project's MIRR?

User Account

All Pages