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
E)cannot tell without additional information

Question

Quizplus · Accepted Answer

To calculate the starting benefit payment, we need to determine the account value at the end of the first year and then divide it by the remaining life expectancy of 14 years.

At the end of the first year, the account value will be:
$500,000 x 1.08 = $540,000

Next, we need to calculate the annual withdrawal percentage using the assumed investment return of 6%:
1 / [(1 + 0.06)^15 - 1] x (1 + 0.06) = 0.09901

Finally, we can calculate the starting benefit payment by dividing the account value at the end of the first year by the annual withdrawal percentage:
$540,000 / 0.09901 = $54,522.73

However, many variable annuity contracts have fees that may include mortality and expense charges, administrative fees, and investment management fees. These fees can vary widely and can significantly reduce the account value and starting benefit payment. Therefore, without knowing the specific fees and contract provisions, we cannot determine the starting benefit payment with complete certainty.

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