Reference no: EM133088330

Question - Deferred Annuities and Perpetuities -

Q1. Rebecca purchased an annuity that had an interest rate of 3.75% compounded semi-annually. It provided her with payments of $1,000 at the end of every month for 5 years. If the first withdrawal is to be made in 4 years and 1 month, how much did she pay for it?

Q2. Edward set up a fund that would pay her family $3,500 at the beginning of every month, in perpetuity. What was the size of the investment in the fund if it was earning 3.00% compounded semi-annually?

Q3. If the market value of a telecommunications share is $293.65, calculate the year-end dividends that it should be able to pay in perpetuity if money is worth 4.00% compounded semi-annually.

Q4. How much would a business have to invest in a fund to receive $24,000 at the end of every month for 5 years? The fund has an interest rate of 4.75% compounded monthly and the first withdrawal is to be made in 3 years and 1 month.

Q5. Cynthia invested her savings in a bank at 3.75% compounded quarterly. How much money did she invest to enable withdrawals of $3,500 at the beginning of every 6 months from the investment for 5 years, if the first withdrawal is to be made in 9 years?

Q6. The Patchmans have decided to invest in a college fund for their young son. They invested $30,000 in a deferred annuity that will pay their son at the beginning of every month for 4 years, while he goes to college. If the account earns 3.00% compounded monthly and the annuity payments are deferred for 12 years, what will be the size of the monthly payments?