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    Question about Annuity Problem

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    I would like assistance in setting up these two problems so I can go ahead and solve them. There are no examples in my text.

    a) A potential client asks you how much he would need to invest today (lump sum) to assure a $35,000 annual supplemental 15-year annuity upon retirement in 20 years. The annuity payment would begin at the end of his first year of retirement. Assume an annual investment yield of 8 percent.

    b) Rather than investing a lump sum, what would be the annual pre-retirement annuity to obtain the same objective? Again, assume end-of-the year convention for the pre-retirement annuity (annuity paid at the end of the year) and an annual investment yield of 8 percent.

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    Solution Preview

    a) A potential client asks you how much he would need to invest today (lump sum) to assure a $35,000 annual supplemental 15-year annuity upon retirement in 20 years. The annuity payment would begin at the end of his first year of retirement. Assume an annual investment yield of 8 percent.

    The amount at the start of retirement should be such that it pays $35,000 per year for 15 years. The amount at ...

    Solution Summary

    The solution explains two problems relating to retirement annuity savings.

    $2.19

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