A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement, you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. Given the following information, how much will your annual benefits be? Present value of $1 PV_IF = .178
Future value of $1 FV_IF = 5.604
Present value of annuity PV_IFA = 9.129
Future value of annuity FV_IFA = 51.16

Question

Quizplus · Accepted Answer

The formula for calculating the annual benefits of a fixed-term annuity is: Annual benefits = (PV of annuity * interest rate) / PV of $1 PV of annuity = $73,425 / PV_IFA = $8,043.16 (rounded to the nearest cent) Interest rate = 9% PV of $1 = 1 / (1 + interest rate)^number of years = 1 / (1 + 0.09)^20 = 0.2065 (rounded to four decimal places) Annual benefits = ($8,043.16 * 0.09) / 0.2065 = $3,505.90 (rounded to the nearest cent) Therefore, the annual benefits will be $8,043.

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