Question

Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $74,000 at age 65, the firm will pay the retiring professor $450 a month until death. If the professor’s remaining life expectancy is 15 years, what is the monthly interest rate on this annuity?

Answer 1

Answer: 0.10%

Explanation:

The following can be gotten from the question:

n = 15 years

We change it to months. Thus will be:

= 15 × 12

= 180

Present value of an annuity :

= A × {1- (1 +r ) -n ]/r}

74000 = 450 × [ 1- (1 +r) - 180]/r

r= 0.10%

Therefore, the monthly interest rate is 0.10%.