Answer to Question #264712 in Finance for Gabby

Question

Uncle Akeju is 65 years of age and has a life expectancy of 12 years. He wishes to invest N20,000 in an annuity that will make a level payment at the end of each year until his death. If the Interest rate is 8 percent, what income can uncle Akeju expect to receive each year

Answer 1

Using the present value of an annuity formula, we have:

PV=C$\times$ $[\frac{1}{R}-\frac{1}{r\times(1+r)^{t}}]$

$\$20,000=C\times[\frac{1}{0.08}-\frac{1}{0.08\times(1+0.08)^{12}}]$

$C$ $=\$2,653.90$