Question

a retirement plan guarantees to pay you a fixed amount for 25 years. at the time of retirement, you will have $100,000 to your credit in the plan. the plan anticipates earning 7% interest annually over the period you receive benefits. assume the first payment occurs one year from your retirement date, how much will your annual benefits be

Answer 1

Answer:

The annual benefits will be$8,581.05

Explanation:

The applicable formula is the present value of an ordinary annuity,which is given as;

PV=A*(1-(1+r)^-N)/r

PV is the amount that would be in the plan at retirement which is $100,000

A is the annual benefits which is unknown

n is the number of years the investment would take which is 25 years

r is the rate of return on investment which is 7%

A=PV/(1-(1+r)^-N)/r

A=100000/(1-(1+7%)^-25/7%

A=100000/1-(1.07)^-25/0.07

A=100000/(1-0.184249178 )/0.07

A=100000/11.65358317

A=$8581.05