CLIENT 4

Arthur F.s situation also involved the amount of $40,000. He had received an inheritance of $40,000 from a great-aunt and had been offered an annuity of $5,000 a year for 25 years, or a total of $125,000 at a cost of $40,000. He also had a number of alternatives available, the lowest of which offered a 12 per cent annual compounded return. Arthur F. like the annuity, but was willing to invest in it only if it offered a 12% return or better.

Should the Individual accept the annuity?