Damian is age 77.He purchased a single life annuity contract that will pay him $6,000 per month for life.The expected return on the contract is:

Question

Quizplus · Accepted Answer

The expected return on the contract is the present value of the annuity payments. The present value of an annuity is calculated as follows:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the annuity paymentr is the interest raten is the number of periodsIn this case, the annuity payment is $6,000, the interest rate is 5%, and the number of periods is 12 * 77 = 924. Plugging these values into the formula, we get:PV = $6,000 * [1 - (1 + 0.05)^-924] / 0.05 = $806,400Therefore, the expected return on the contract is $806,400.

Damian Is Age 77