Question

Siegfried Basset is 65 years of age and has a life expectancy of 12 more years. He wishes to invest $20,000 in an annuity that will make a level payment at the end of each year until his death. If the interest rate is 8%, what income can Mr. Basset expect to receive each year?

Answer 1

Answer:

amount receive is $2653.90

Explanation:

given data

time t = 12 year

present value = $20000

rate r = 8 %  = 0.08

to find out

how much income receive each year

solution

we will apply here present value formula that is

present value = amount × $( \frac{1}{r} - \frac{1}{r*(1+r)^{t} } )$   .........1

put here all these value in equation 1 we get amount

present value = amount × $( \frac{1}{r} - \frac{1}{r*(1+r)^{t} } )$

20000 = amount × $( \frac{1}{0.08} - \frac{1}{0.08*(1+0.08)^{12} } )$

solve it and we get amount = 2653.90

so amount receive is $2653.90