After your grandmother retired,she purchased an annuity contract for $250,000 that will pay her $25,000 at the end of every year until she dies.The appropriate interest rate for this annuity is 8%.The number of years that your grandmother must live in order to get more value out of the annuity than the purchase price is closest to:
A)21.
B)16.
C)8.
D)10.

Question

Quizplus · Accepted Answer

The present value of the annuity is $250,000. The present value of the payments is $25,000 * (1 - (1 + 0.08)^-n) / 0.08. Setting this equal to $250,000 and solving for n gives n = 21.

After Your Grandmother Retired,she Purchased an Annuity Contract for $250,000