Charles is the sole beneficiary of his late uncle's life insurance policy.The face value of the policy is $785,000.Charles has decided to accept annual annuity payments of $95,000.The interest rate on the policy is 5%.How many annual payments will Charles receive from this policy?

Question

Quizplus · Accepted Answer

To determine how many annual payments Charles will receive from the policy, we need to use the present value of an annuity formula, which is:
PV = PMT x (1 - (1 + r)^(-n)) / r
where PV is the present value (which is the face value of the policy in this case), PMT is the annual payment, r is the interest rate, and n is the number of annual payments.

Plugging in the given values, we get:
785,000 = 95,000 x (1 - (1 + 0.05)^(-n)) / 0.05

Solving for n, we get:
n = -ln(1 - (785,000 x 0.05 / 95,000)) / ln(1 + 0.05)
n ≈ 10.92

Therefore, Charles will receive 10.92 annual payments from the policy, which is closest to answer C: 10.92 years worth of payments.

Charles Is the Sole Beneficiary of His Late Uncle's Life