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Unformatted text preview: ishes to choose the best of four
immediate-retirement annuities available to her. In each case, in exchange for
paying a single premium today, she will receive equal annual end-of-year cash
benefits for a specified number of years. She considers the annuities to be equally
risky and is not concerned about their differing lives. Her decision will be based
solely on the rate of return she will earn on each annuity. The key terms of each
of the four annuities are shown in the following table.
Annuity Premium paid today Annual benefit Life (years) A $30,000 $3,100 20 B 25,000 3,900 10 C 40,000 4,200 15 D 35,000 4,000 12 a. Calculate to the nearest 1% the rate of return on each of the four annuities
Raina is considering.
b. Given Raina’s stated decision criterion, which annuity would you
LG6 4–51 Interest rate for an annuity Anna Waldheim was seriously injured in an
industrial accident. She sued the responsible parties and was awarded a judgment of $2,000,000. Today, she and her attorney are attending a settlement
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