Suppose a 50-year old person wants to purchase an annuity from an insurance company that pay $30,000 per year until the end of that person’s life. The insurance company expects this person to live for 25 more years and would be willing to pay 4.2 percent on the annuity.

How much should the insurance company ask the person to pay for the annuity?

What if the person is expected to live for 35 more years?

If the same 4.2 percent interest rate applies, how much should this person be charged for the annuity

In each case, what is the difference in the purchase price of the annuity if the distribution payments are made at the beginning of the year?