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Time Value of Money, Retirement Fund

3. Kay Mart owns an annuity that will begin making semiannual payments of $7500 in perpetuity to her or her heirs. The first payment will take place 3 years and 6 months from today. She is considering selling the annuity to an investor whose required rate of return is 11% EAR. How much will she get for her annuity if she decides to sell?

4. You are now 35 years old. You wish to retire in 30 years on $6000 per month. You believe Social Security will provide you at that time with $1800 per month?the rest will have to be self-funded. You want your retirement account to last 30 years?you also want to make your first of 360 monthly withdrawals on the day you retire. Your retirement funds will be deposited in an insured account with a .35%/month return. Your savings will consist of a bond fund earning 2.75% semiannually. How much do you need to deposit each year?with the first deposit coming one year from today?in order to meet your retirement goal?

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3. Kay Mart owns an annuity that will begin making semiannual payments of $7500 in perpetuity to her or her heirs. The first payment will take place 3 years and 6 months from today. She is considering selling the annuity to an investor whose required rate of return is 11% EAR. How much will she get for her annuity if she decides to sell?

EAR= 11%
Semi annual rate = 5.3565% =(1+11%)^(1/2)-1

Semiannual payment= $7,500 in perpetuity from 3 years and 6 months onwards
Value of this perpetuity at the end of 3 years= $140,016.80 =7500/5.3565%

Value at time ...

Solution Summary

Calculates the value of annuity.

$2.19