A retired person has $700,000 in a retirement account. An insurance company is offering to give the

Question:

A retired person has $700,000 in a retirement account. An insurance company is offering to give the retired person an annuity of $61,029 at the end of each year for the next 20 years in exchange for the $700,000. The retired person requires a rate of return of 8% on investments; this is the rate currently being earned in the retirement account.

1. What is the net present value of this exchange?

2. What is the internal rate of return implied in this exchange?

3. Should the retired person accept the exchange offered by the insurance company?

Net Present Value
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Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Annuity
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