Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an older woman who is ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her a fixed annual income. The annuities are as follows: Duration of the Annuity (Years) Annuity Purchase Price of the Annuity (At t = 0) $50,000 $30,000 $50,000 UD Amount of Money Received Per Year $9,000 $6,000 $7,500 15 16 18 Nicki could earn 12 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a higher return than investing in the savings account earning 12 percent? a. If Nicki could earn 12 percent on her money, what is the present value of annuity A with $9,000 payments per year and 15 years duration? $ (Round to the nearest cent.) If Nicki could earn 12 percent on her money by placing it in a savings account, should she place it instead in annuity A? (Select the best choice below.) A Yes Nicki should place her money in annuity A because the present value of the annuity is areater than the initial payment Click to select your answer(s). . Annuity Duration of the Annuity (Years) Purchase Price of the Annuity (At t = 0) $50,000 $30,000 $50,000 Amount of Money Received Per Year $9,000 $6,000 $7,500 15 16 18 Nicki could earn 12 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a higher return than investing in the savings account earning 12 percent? O A. Yes. Nicki should place her money in annuity A because the present value of the annuity is greater than the initial payment. O B. No. Nicki should not place her money in annuity A because the present value of the annuity is smaller than the initial payment. b. If Nicki could earn 12 percent on her money, what is the present value of annuity B with $6,000 payments per year and 16 years duration? $ (Round to the nearest cent.) Click to select your answer(s). O A. Yes. Nicki should place her money in annuity B because the present value of the annuity is greater than the initial payment. B. No. Nicki should not place her money in annuity B because the present value of the annuity is smaller than the initial payment. C. If Nicki could earn 12 percent on her money, what is the present value of annuity C with $7,500 payments per year and 18 years duration? $ (Round to the nearest cent.) Click to select your answer(s). If Nicki could earn 12 percent on her money by placing it in a savings account, should she place it instead in annuity C? (Select the best choice below.)
A. Yes. Nicki should place her money in annuity C because the present value of the annuity is greater than the initial payment.
B. No. Nicki should not place her money in annuity C because the present value of the annuity is smaller than the initial payment. Click to select your answer(s).
Answers: 1
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Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent w...
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