Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Calculate the first annuity payment from the SPDA for Peter, assuming he starts the annuity as scheduled (October 1, 2017). Economic Information - They expect

Calculate the first annuity payment from the SPDA for Peter, assuming he starts the annuity as scheduled (October 1, 2017).

Economic Information

- They expect inflation to average 3% (consumer price index) annually over both the short and long term.

- They expect returns of 11% annually on the S&P 500 Index. 90-day T-bills are currently yielding 2%.

- Current mortgage rates are 4.25% for a fixed 15-year mortgage and 6% for a fixed 30-year mortgage.

- Mortgage closing costs are expected to be 3% of any mortgage.

Peter’s SPDA

  • The SPDA was acquired on December 31, 1981, for $79,602. The current fair market value is $332,403.

  • Contract had back-end surrender charges of 4.5% for the first seven years.

  • Currently, the earnings rate is 6% compounded quarterly.

  • The annuity start date is October 1, 2017, and will consist of quarterly annuity payments made as an annuity due over Peter’s life (Peter’s life expectancy is 25 years as of October 1, 2017).

  • Patricia is the named beneficiary if Peter dies before the annuity start date.

Step by Step Solution

3.41 Rating (151 Votes )

There are 3 Steps involved in it

Step: 1

The first annuity payment from the SPDA for Peter will be 1449040 To calculate the first annuity payment we need to determine the present value of the annuity payments We will use the following equati... 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

Statistics The Exploration & Analysis Of Data

Authors: Roxy Peck, Jay L. Devore

7th Edition

0840058012, 978-0840058010

More Books

Students also viewed these Finance questions