Alan Arnold has just turned 65 . He has $100,000 to invest in a retirement annuity. One investment company has offered to pay Alan $10,000 per year for 15 years (payments to begin in one year) in exchange for an immediate $100,000 payment. If Alan accepts the offer from the investment company, what is his expected return on the $100,000 investment (assume a return that is compounded annually)?
Present value tables or a financial calculator are required.
a. between 5 and 6 percent
b. between 6 and 7 percent
c. between 7 and 8 percent
d. between 8 and 9 percent
A
$100,000/$10,000 = 10.000 PV of annuity Table Factor
For 15 years, this factor represents a return on investment between 5 and 6 percent.
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