Assume that at retirement you have accumulated $500,000 in a variable annuity contract.The assumed investment return is 6%, and your life expectancy is 15 years.If the first year's actual investment return is 8%, what is the starting benefit payment?
A)$30,000.00
B)$33,333.33
C)$51,481.38
D)$52,452.73

Question

Quizplus · Accepted Answer

To calculate the starting benefit payment, we need to use the formula:
Starting Benefit Payment = (Account Value / Present Value Factor) x (1 - 1 / (1 + i)^n) / i
where:
Account Value = $500,000
i = first-year investment return = 8%
n = life expectancy = 15 years
Present Value Factor can be calculated using an annuity table or formula. For simplicity, we can use an online calculator and assume a 6% discount rate. The Present Value Factor for 15 years is 8.5594.

Plugging in the values, we get:
Starting Benefit Payment = (500,000 / 8.5594) x (1 - 1 / (1 + 0.08)^15) / 0.08
Starting Benefit Payment = $52,452.73

Therefore, the correct answer is D.

Assume That at Retirement You Have Accumulated $500,000 in a Variable