You deposit $10,000 annually into a life insurance fund for the next 10 years, at which time you plan to retire. Instead of a lump sum, you wish to receive annuities for the next 20 years. What is the annual payment you expect to receive beginning in year 11 if you assume an interest rate of 8 percent for the whole time period?

The annuity is $ 7243,28

Explanation:

To calculate the following we can use a financial calculator.

We are making deposits of $10000 for 10 years. The interest rate is 8%

We need to work out the future value of the lumpsum in 10 years time.

n = 10 i = 8% pmt = 10000 COMP FV

FV = $ 144865,62

Now to calculate the annual annuity receivable we divide this amount by 20.

144865,62 / 20 = $ 7243,28

Thus the annual annuity you will receive over the 20 year period is $7243,28