Question

14) Your father is about to retire, and he wants to buy an annuity that will provide him with $100,000 of income per year for 20 years, beginning a year from today. The going rate on such annuities is 1.0%. How much would it cost him to buy such an annuity today (in $'000s)? a $1,059 b. $1,447 c. $1,805 d. $2,009 e. $3,487 8) What would the future value of $2,000 be after 5 years at 4% compound interest? a. $1.149 b. $1,364 $2,212 $2,433 $2,772 SUDO

Answer 1

14.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=100,000[1-(1.01)^-20]/0.01

=100,000*18.045553

=$1805(Approx).

8.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=2000*(1.04)^5

=$2433(Approx).