A university is offering a charitable gift program. A former student who is now 50 years old is...

Question:

A university is offering a charitable gift program. A former student who is now 50 years old is consider the following offer:

The student can invest $10,000.00 today and then will be paid a 9.00% APR return starting on his 65th birthday (i.e For a $10,000 investment, a 9% rate would mean $900 per year). The program will pay the cash flow for this investment while you are still alive. You anticipate living 22.00 more years after your 65th birthday. The former student wants a return of 8.00% on his investments, but would like to consider this opportunity. Using the student's desired return, what is the value of this deferred annuity today on his 50th birthday? Round to 2 decimal places.

Charity motive:

Charity motive can be summarized as the motive in which the purpose of undertaking action is doing some charity. Such motives are opposite of financial motives and gives satisfaction to the concerned person.

Answer and Explanation: 1

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Calculations:

$$\begin{align*} {\rm\text{Value of deferred annuity}}& = {\rm\text{Return amount}} \times \frac{{1 - {{(1 + {\rm\text{Interest...

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How to Calculate the Present Value of an Annuity

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Chapter 8 / Lesson 3
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Learn how to find present value of annuity using the formula and see its derivation. Study its examples and see a difference between Ordinary Annuity and Annuity Due.


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