Answer: 71% or $12,780 annually.
Explanation:
To find the amount of the Annuity that represents a return on Capital each year you divide the cost of the Annuity by the total amount of the Annuity to be received if the single life annuity is used to the fullest.
First then, we would need to calculate the full value of the Annuity.
Janice expects to get $1,500 per month for 17.6 years.
That means the total value would be,
= 1,500 * 12 months * 17.6 years
= $316,800 is the Total Annuity Receivable.
Calculating the return on Capital we will have,
= Cost of Annuity / Total Annuity Receivable
= 225,000 / 316,800
= 0.71022727272
= 71%
Monthly calculated that would be,
= 0.71 (1,500 * 12)
= $12,780
The return on Capital is 71% or $12,780 annually.
