Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. NY Life offers Alex an annuity that pays $50,000 per year until death in equal monthly installments. The cost of the annuity at retirement

1. NY Life offers Alex an annuity that pays $50,000 per year until death in equal monthly installments. The cost of the annuity at retirement is $950,000. From an NPV perspective, is this annuity better or worse than the 401(k) and/or DB/K plans? Assume Alex lives 15 years after retirement and inflation of 3%.

2. Chubb also offers a DB/K plan that promises 60% of average employee salary upon retirement, payable until death.4 The plan requires employees contribute 5% each paycheck. Alexs average salary during his 32-year tenure is $120,000. If he lives 15 years after retirement and receives monthly payments, what is the present value of the DB/K plan distributions assuming 3% inflation? Would Alex have been better off choosing the DB/K plan over his 401(k) contributions?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Financial Management

Authors: Eugene BrighamPhillip Daves

1st Edition

0324594712, 9780324594713

More Books

Students also viewed these Finance questions

Question

Identify the critical elements in a performance management system

Answered: 1 week ago

Question

Identify the skills necessary for effective coaching

Answered: 1 week ago