A 65-year-old person has saved $1,250,000 and wishes to receive 10 annual annuity payments,beginning in one year. If the annuity rate is 5.75 percent,he can expect to receive $167,829 per year.

Question

Quizplus · Accepted Answer

Using the present value of an annuity formula:
PV = C * (1 - (1+r)^-n)/ r
Where
PV is the present value of annuity
C is the annual payment to be received
r is the interest rate per period
n is the number of periods
Plugging in the given values:
PV = 1,250,000
C = 167,829
r = 5.75% or 0.0575
n = 10
1,250,000 = 167,829 * (1 - (1+0.0575)^-10)/ 0.0575
1,250,000 = 1,236,968.15
Hence, the given statement is true.

A 65-Year-Old Person Has Saved $1,250,000 and Wishes to Receive