Part A)

Tyson wishes to purchase an annuity contract that will pay him $7,000 at the start of every year for the rest of his life. The Mauri Insurance Company gures that his life expectancy is 20 years, based on its actuary tables. The company imputes a compound annual interest rate of 6 percent in its annuity contracts.

a. How much will Tyson have to pay for the annuity? (2 marks)

b. How much would he have to pay if the interest rate were 8 percent? (2 marks)

Part B)

Ruddy wants to have $50,000 at the end of 10 years. To accumulate this sum, he has decided to save a certain amount at the end of each of the next 10 years and deposit it in the bank. The bank pays 8 percent interest compounded annually for long-term deposits. How much will Ruddy have to save at the start of each year (to the nearest dollar)?(3 marks)

Part C)

You plan to invest $2,000 in an individual retirement arrangement (IRA) today that pays a stated annual interest rate of 8 percent, which is expected to apply to all future years.

How much will you have in the account at the end of 10 years if interest is compounded as follows?

(i) Annually (1)

(ii) Semiannually (1)

(iii) Monthly (1)