Check my wa Professor\'s Annuity Corp. offers a lifetime annuity to retiring pro
ID: 2811285 • Letter: C
Question
Check my wa Professor's Annuity Corp. offers a lifetime annuity to retiring prof retiring professor $625 a month until death. ssors. For a payment of $81,000 at age 65, the firm will pay the a. If the professor's remaining life expectancy is 15 years, what is the monthly interest rate on this annuity? (Do not round intermedlate calculations. Enter your answer as a percent rounded to 2 declmal places.) Monthly rate on annuity b. What is the effective annual interest rate? (Use the monthly rate computed in part (a) rounded to 2 declmal places when expressed as a percent. Enter your answer as a percent rounded to 2 decimal places.) Effective annual rate c. If the monthly interest rate is 0.75%, what monthly annuity payment can the firm offer to the retiring professor? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Monthly annulty paymentExplanation / Answer
a.
use excel function to find monthly interest rate=RATE(nper,pmt,pv,fv)
monthly interest rate=RATE(nper,pmt,pv,fv)
=RATE(15*12,625,-81000,0)
=0.39%
b.
effective annual rate=(1+0.39%)^12-1=4.78%
c.
monthly annuity payment will be=81000/((1-(1+0.75%)^(-15*12))/0.75%)
=821.56
the above is answer..