Question 1

Duncan retired recently and plans to utilize other savings for a few years while his RRSP continues to grow on a tax-deferred basis. The RRSP is currently worth $142,470. How long will it be until the amount in the RRSP is large enough to purchase a 25-year annuity paying $1700 at the end of each month? Assume that the RRSP and the annuity will earn 8.75% compounded semi-annually.

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Question 2

What amount must be invested today to allow for quarterly payments of $2,500 at the end of every quarter for 15 years after a six-year deferral period? Assume that the funds will earn 5% compounded semi-annually.

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Question 3

How long (before the first withdrawal) must a $19,665 investment earning 9.5% compounded semi-annually be allowed to grow before it can provide 60 quarterly withdrawals of $1,000?

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Question 4

As of Brice's 54^th birthday, he has accumulated $154,000 in his Registered Retirement Savings Plan (RRSP). What size of end-of-month payments in a 20-year annuity will these funds purchase at age 65 if he makes no further contributions? Assume that his RRSP and the investment in the annuity will earn 8.25% compounded monthly.

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Question 5

To sell a farm that it had acquired in a foreclosure action, the Royal Bank agreed to monthly payments of $2,700 for 20 years, with the first payment due 15 months from the date of sale. If the purchaser paid 15% down and the interest rate on the balance is 9% compounded annually, what was the purchase price?

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Question 6

A finance company paid a merchant $3,975 for a conditional sale contract after discounting it to yield 18% compounded monthly. If the contract is for 20 monthly payments of $256.96 following a payment-free period, what is the time interval between the date of sale and the first payment?

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Question 7

What amount invested today will provide yearly payments of $50,000 for 20 years starting 10 years from now if invested at 5.5% compounded annually?

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Question 8

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

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Question 9

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

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Question 10

Harold, just turned 27, wants to accumulate an amount in his RRSP at age 60 that will have the purchasing power of $300,000 in current dollars. What annual contributions on his 28^th through 60^th birthdays are required to meet this goal if the RRSP earns 8.5% compounded annually and the rate of inflation is 2.5% per year?

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Question 11

A $30,000 loan bearing interest at 9% compounded monthly was repaid, after a period of deferral, by monthly payments of $425.10 for 10 years. What was the time interval between the date of the loan and the first payment?

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Question 12

$30,000 is placed in a fund earning 7% compounded quarterly. How many quarterly withdrawals of $2,000 can be made if the first withdrawal occurs three years from today? Count the final withdrawal, which will be less than $2,000.

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Question 13

Leslie received a $40,000 settlement when her employer declared her job redundant. Under special provisions of the Income Tax Act, she was eligible to place $22,000 of the amount in an RRSP. Fifteen years from now, she intends to transfer the money from the RRSP to a Registered Retirement Income Fund (RRIF). Thereafter, Leslie will make equal withdrawals at the end of each quarter for 20 years. If both the RRSP and the RRIF earn 8.5% compounded quarterly, what will be the amount of each withdrawal?

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Question 14

The Bay is offering "no money down, and no payments for a year." The total cost of a purchase of electronic equipment is $3500 including taxes. What monthly payment is required to pay off this debt in two years, if payments start in one year, and the Bay charges interest at 2% per month? What is the amount of interest that the purchaser pays overall?

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Question 15

Mrs. Clare wants to set up a college fund for her daughter so that she will have a monthly income of $500 each month for three years starting 10 years from now. How much should she deposit today if money earns 4.25% compounded monthly?

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Question 16

What is the current economic value of an inheritance that will pay $2,500 to the beneficiary at the beginning of every three months for 20 years starting when the beneficiary reaches 21 years of age, 5¼ years from now? Assume that money can earn 6% compounded monthly.

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Question 17

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

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Question 18

Fred asked two life insurance companies to give quotes on a 20-year deferred annuity (after a 5-year deferral period) that can be purchased for $100,000. Northwest Mutual quoted payments of $875 payable at the end of each month. Liberty Standard stated that all their annuity options provide a rate of return equal to 5.5% compounded annually. Which should Fred choose?

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Question 19

What price will a finance company pay to a merchant for a conditional sale contract that requires 12 monthly payments of $249, with the first payment due six months from now? The finance company requires a return of 16.5% compounded monthly.

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Question 20

What is the current economic value of an inheritance that will pay $2,500 to the beneficiary at the beginning of every three months for 20 years starting when the beneficiary reaches 21 years of age, 5¼ years from now? Assume that money can earn 6% compounded monthly.

Accepted Answer

The answer of What is the current economic value of...

Quiz 12: Annuities: Special Situations

What amount must be invested today to allow for quarterly payments of $2,500 at the end of every quarter for 15 years after a six-year deferral period? Assume that the funds will earn 5% compounded semi-annually.

How long (before the first withdrawal) must a $19,665 investment earning 9.5% compounded semi-annually be allowed to grow before it can provide 60 quarterly withdrawals of $1,000?

A finance company paid a merchant $3,975 for a conditional sale contract after discounting it to yield 18% compounded monthly. If the contract is for 20 monthly payments of $256.96 following a payment-free period, what is the time interval between the date of sale and the first payment?

What amount invested today will provide yearly payments of $50,000 for 20 years starting 10 years from now if invested at 5.5% compounded annually?

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

A $30,000 loan bearing interest at 9% compounded monthly was repaid, after a period of deferral, by monthly payments of $425.10 for 10 years. What was the time interval between the date of the loan and the first payment?

$30,000 is placed in a fund earning 7% compounded quarterly. How many quarterly withdrawals of $2,000 can be made if the first withdrawal occurs three years from today? Count the final withdrawal, which will be less than $2,000.

Mrs. Clare wants to set up a college fund for her daughter so that she will have a monthly income of $500 each month for three years starting 10 years from now. How much should she deposit today if money earns 4.25% compounded monthly?

What is the current economic value of an inheritance that will pay $2,500 to the beneficiary at the beginning of every three months for 20 years starting when the beneficiary reaches 21 years of age, 5¼ years from now? Assume that money can earn 6% compounded monthly.

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

What price will a finance company pay to a merchant for a conditional sale contract that requires 12 monthly payments of $249, with the first payment due six months from now? The finance company requires a return of 16.5% compounded monthly.

What is the current economic value of an inheritance that will pay $2,500 to the beneficiary at the beginning of every three months for 20 years starting when the beneficiary reaches 21 years of age, 5¼ years from now? Assume that money can earn 6% compounded monthly.