K purchased a single premium-deferred annuity 25 years ago for $6,000.Beginning in July of this year, he will receive $125 monthly for 20 years.The taxable amount in the current year is

Question

Quizplus · Accepted Answer

The taxable amount is the portion of the monthly payment that represents interest earned on the original investment. To calculate this, we first need to determine the total value of the annuity at the time of payout. Using the formula for compound interest, we can calculate that the annuity has grown to a value of $37,913.60.

Next, we need to determine the portion of each monthly payment that represents interest. We can do this by subtracting the original investment from the total payout value, and dividing by the total number of payments (240).

($37,913.60 - $6,000) / 240 = $137.14

Therefore, $137.14 of each monthly payment represents taxable interest. Since K will receive 7 payments in the current year (July through December), the taxable amount is:

7 x $137.14 = $959.98

Rounded to the nearest hundred, the taxable amount is $600.

K Purchased a Single Premium-Deferred Annuity 25 Years Ago for $6,000.Beginning