Because she is only 25 years old she is not concerned

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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 recommend? 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 conference with...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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