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    Calculate the taxable amount for Herbert's annuity payments

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    Herbert purchased a 10 year annuity for $96,000 late in 2008. The annuity will pay him $4,000 per month for ten years starting on Sept 1, 2008. How much of the $16,000 received this year will be taxable?

    A. 12,800
    B. 16,000
    C. 0
    D. 3,200

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    Solution Preview

    Facts about the annuity:

    Deposit $96,000 on 9-1-08
    Payments of $4000 for 10 years
    Total value of annuity = 4000 x 10 years x 12 months = ...

    Solution Summary

    The solution breaks down the problem into specific parts and then calculates each part to arrive at the correct answer.