Habiba is age 74 and married.Her husband is age 73.She purchased a single life annuity contract that will pay her $20,000 per year for life.The expected return on the contract is

Question

Quizplus · Accepted Answer

To calculate the expected return on the contract, we need to use actuarial tables to determine the life expectancy of Habiba. According to the Social Security Administration's life expectancy tables, a 74-year-old woman has an average life expectancy of 14.5 years. Therefore, the expected return on the annuity contract would be:
$20,000 x 14.5 = $290,000
However, since the contract is a single life annuity, it will only pay out as long as Habiba is alive. Therefore, we need to calculate the present value of the annuity based on a life expectancy of 14.5 years. Using an interest rate of 5%, the present value would be:
$20,000 x (1 - 1.05^-14.5) / 0.05 = $264,000
Therefore, the best choice is B.

Habiba Is Age 74 and Married