A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.122 percent?

Question

Quizplus · Accepted Answer

The present value of the annuity is $1,100,000. The annual payment is $95,000. The annuity interest rate is 5.122 percent. The number of payments can be calculated as follows:PV = PMT * (1 - (1 + r)^-n) / r$1,100,000 = $95,000 * (1 - (1 + 0.05122)^-n) / 0.05122n = 18.01Therefore, the policyholder can expect to receive approximately 18 payments.

A Policyholder Wishes to Annuitize the Cash Value of Her