Asked by Ntswaki Mereki on Apr 26, 2024
Verified
How much will it cost to purchase a 20-year indexed annuity in which the end-of-quarter payments start at $5,000 and grow by 2% compounded quarterly? Assume that the money used to purchase the annuity earns 6% compounded quarterly.
Indexed Annuity
An annuity that earns interest or provides benefits that are linked to the performance of a specified index of the stock market.
Compounded Quarterly
A method where interest is added to the principal amount of an investment or loan at the end of every three months, leading to interest earning interest.
- Determine the eventual financial accumulation of ordinary and deferred annuities, especially those experiencing growth at a compounded interest rate.
- Acquire knowledge on the effect of compounding periodicity on the augmentation of investment and savings growth.
- Assess the financial feasibility and cost of purchasing indexed annuities with varying compounding rates.
Verified Answer
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Learning Objectives
- Determine the eventual financial accumulation of ordinary and deferred annuities, especially those experiencing growth at a compounded interest rate.
- Acquire knowledge on the effect of compounding periodicity on the augmentation of investment and savings growth.
- Assess the financial feasibility and cost of purchasing indexed annuities with varying compounding rates.
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