Concept explainers
Deferred annuity:
A deferred annuity refers to the annuity which does not make payments immediately. It is a type of annuity contract which makes either monthly contribution to the account over time or leave their money in the account with a belief that it will grow.
Present Value:
The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:
Present value of an annuity due:
For the present value of an annuity due, the same formula of an ordinary annuity is used, expected amount of immediate cash flow, which is added to the present value of the future periodic cash flows which are remaining.
To determine: The best alternative that J should choose, assuming that he is able to invest funds at a 7% interest rate.
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- 4G H 10:13 O O l 01:57:06 Remaining Multiple Choice T purchased a life annuity for P1,500,000 which will pay him P150,000 a year. What will T include in his gross income on the 11th year of the policy? P150,000 P1,350,000 P1,500,000 ZERO 39 of 60arrow_forward192 Q10 Reta had accumulated $119,875.67 in her Registered Retirement Savings Plan (RRSP). She turned 71, and as required by Canadian tax law, converted her RRSP into a Registered Retirement CLR 11 L12 Obj. 6 Income Fund (RRIF). The RRIF will pay her an annuity of $1,800 at the 193 end of every month for 9 years. 194 What is the nominal annual rate of interest? 195 Use Excel or your programmable calculator to solve this problem! 196 197 198 199 200 201 202arrow_forwardProblem 13NOREEN INC, a truck dealer, sells a truck on January 1, 2019, to MENDOZA INC for P3,000,000. NOREEN agrees to repurchase the truck on December 31, 2020 for P3,630,000 Using the information above, what is the interest expense for 2019?2.A. None C. 330,000 B. 300,000 D. 630,000arrow_forward
- QUESTION 5 Your client is currently 21 years old. The interest rate on the funds your client has available is 3.90%. Your client can make annual contributions of $6,000 per year. Your client wishes to retire at the age of 67 and has an expected lifetime of 89. Calculate the annual payment your client can receive in retirement. O a. $47,085 O b. $50,738 O c. $54,691 O d. $58,966 O e. $63,593arrow_forwardProblem 5-11 Employee Pensions (LO 5.4) Tony is a 45-year-old self-employed psychiatrist who has net earned income of $300,000 in 2021. What is the maximum amount he can contribute to his SEP for the year? 60,000 xarrow_forwardExercise 10-3A (Algo) Determining the present value of a lump-sum future cash receipt LO 10-1 Gail Trevino expects to receive a $630,000 cash benefit when she retires seven years from today. Ms. Trevino’s employer has offered an early retirement incentive by agreeing to pay her $368,000 today if she agrees to retire immediately. Ms. Trevino desires to earn a rate of return of 10 percent. (PV of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) Required a. Calculate the present value of the $630,000 future cash benefit. Assuming that the retirement benefit is the only consideration in making the retirement decision, should Ms. Trevino accept her employer’s offer? (Round your final answer to the nearest whole dollar value.)arrow_forward
- P9–3 Before-tax cost of debt and after-tax cost of debt David Abbot is buying a new house, and he is taking out a 30-year mortgage. David will borrow $200,000 from a bank, and to repay the loan he will make 360 monthly payments (principal and interest) of $1,199.10 per month over the next 30 years. David can deduct interest payments on his mortgage from his taxable income, and based on his income, David is in the 30% tax bracket. What is the before-tax interest rate (per year) on David’s loan? What is the after-tax interest rate that David is paying?arrow_forwardExercise 10-3A (Algo) Determining the present value of a lump-sum future cash receipt LO 10-1 Gail Trevino expects to receive a $600,000 cash benefit when she retires five years from today. Ms. Trevino's employer has offered an early retirement incentive by agreeing to pay her $430,000 today if she agrees to retire immediately. Ms. Trevino desires to earn a rate of return of 8 percent. (PV of $1& and PVA of $1) Note: Use appropriate factor(s) from the tables provided. Required a. Calculate the present value of the $600,000 future cash benefit. Assuming that the retirement benefit is the only consideration in making the retirement decision, should Ms. Trevino accept her employer's offer? Note: Round your final answer to the nearest whole dollar value. Present value Should Ms. Trevino accept the offer? Yes 8arrow_forwardProblem 5-14 (Algo) Deferred annuities; pension obligation [LO5-8, 5-10] Three employees of the Horizon Distributing Company will receive annual pension payments from the company when they retire. The employees will receive their annual payments for as long as they live. Life expectancy for each employee is 14 years beyond retirement. Their names, the amount of their annual pension payments, and the date they will receive their first payment are shown below: Employee Tinkers Evers Chance Annual Payment $ 23,000 28,000 33,000 Required: 1. Compute the present value of the pension obligation to these three employees as of December 31, 2024. Assume an 11% interest rate. 2. The company wants to have enough cash invested at December 31, 2027, to provide for all three employees. To accumulate enough cash, they will make three equal annual contributions to a fund that will earn 11% interest compounded annually. The first contribution will be made on December 31, 2024. Compute the amount of…arrow_forward
- Problem 9-8 Calculating the Amount of Disability Benefits [LO7] Kennedi Stapleton, a widow, has take-home pay of $5,400 a month. Her disability insurance coverage replaces 70 percent of her earnings after a 90-day (3-month) waiting period. a. What amount would she receive in disability benefits if an illness kept Kennedi off work for 270 days (9 months)? (Omit the "$" sign in your response.) Disability benefits b. What if her disability started when she was age 20 and was severe enough that it lasted until she was 50 years old? (Omit the "$" sign in your response.) Disability benefitsarrow_forwardrr.17 Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to: 1.3% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2005. Mills is expected to retire at the end of 2049 after 45 years of service. His retirement is expected to span 15 years. At the end of 2024, 20 years after being hired, his salary is $96,000. The company’s actuary projects Mills’s salary to be $430,000 at retirement. The actuary’s discount rate is 6%. For all requirements, round final answers to the nearest whole dollars. Do not round intermediate calculations. Use Excel, or a financial calculator. Required: Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2024.arrow_forward4-11A • LO 1 See Figure 4.3 on page 4-9, Example 4-1 on page 4-8 George Clausen (age 48) is employed by Kline Company and is paid a salary of $42,640. He has just decided to join the company's Simple Retirement Account (IRA form) and has a few questions. Answer the following for Clausen: a. What is the maximum that he can contribute into this retirement fund? 2$ b. What would be the company's contribution? 2$ c. What would be his weekly take-home pay with the retirement contribution deducted (married filing jointly, wage-bracket method, and a 2.3% state income tax on total wages)? 2$ d. What would be his weekly take-home pay without the retirement contribution deduction?arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENTPFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning