Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent, who believes that Nicki is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her an annual fixed income.

If Nicki could earn 9 percent on her money by placing it in a savings account, should she place it instead in any of the annuities? Which ones, if any? Why?

a. What rate of return could Nicki earn on her money if she place it in annuity A with $8500 payment per year and 10 years duration?

If Nicki could earn 9 percent on her money by placing it in a savings account, should she place it instead in annuity A? (Select the best choice below.)

A.

No. Nicki should not place her money in annuity A because the expected rate of return on the annuity is smaller than the one on the savings account.

B.

Yes. Nicki should place her money in annuity A because the expected rate of return on the annuity is greater than the one on the savings account.

b. What rate of return could Nicki earn on her money if she place it in annuity annuity B with $7 500 payment per year and 25 years duration?

nothing%(Round to two decimal places.)

If Nicki could earn 9 percent on her money by placing it in a savings account, should she place it instead in annuity B? (Select the best choice below.)

A.

Yes. Nicki should place her money in annuity B because the expected rate of return on the annuity is greater than the one on the savings account.

B.

No. Nicki should not place her money in annuity B because the expected rate of return on the annuity is smaller than the one on the savings account.

c. What rate of return could Nicki earn on her money if she place it in annuity annuity C with $7000 payment per year and 20 years duration?

nothing%(Round to two decimal places.)

If Nicki could earn 9 percent on her money by placing it in a savings account, should she place it instead in annuity C? (Select the best choice below.)

A.

No. Nicki should not place her money in annuity C because the expected rate of return on the annuity is smaller than the one on the savings account.

B.

Yes. Nicki should place her money in annuity C because the expected rate of return on the annuity is greater than the one on the savings account.

ANNUITY INITIAL PAYMENTINTO ANNUITY (AT t = 0) AMOUNT OF MONEY RECEIVED PER YEAR DURATION OF ANNUITY (YEARS)

A 50,000 8,500 10

B 70,000 7,500 25

C 60,000 7,000 20