Question

You have set up a life annuity with a present value of $250,000. If your life expectancy at retirement is 25 years, what will your monthly income be if the APR is 8%, compounded monthly?

a. $1978.69
b. $2047.65
c. $1929.54
d. $1889.03

Answer 1

The correct answer is C.

Step-by-step explanation:

Giving the following information:

Present value= $250,000

Number of periods= 25*12= 300 months

Interest rate= 0.08/12 = 0.006667

To calculate the monthly income, we need to use the following formula:

Monthly withdraw= (PV*i) / [1 - (1+i)^(-n)]

Monthly withdraw= (250,000*0.006667) / [1 - [1.006667^-300)

Monthly withdraw= $1,929.6