Exam 12: Annuities: Special Situations

Determine the unknown value for the following deferred annuity. The annuity is understood to be an ordinary annuity after the period of deferral.

What is the current economic value of an inheritance that will pay $2,000 to the beneficiary at the beginning of every three months for 20 years, starting when the beneficiary reaches 20 years of age, 4½ years from now? Assume that money is worth 6% compounded monthly. (Round to the nearest dollar.)

Dr. Pollard donated $100,000 to the Canadian National Institute for the Blind. The money is to be used to make semi-annual payments in perpetuity (after a period of deferral) to finance the recording of books on tape. The first perpetuity payment is to be made five years from the date of the donation. If the funds are invested at 5% compounded semi-annually, what will be the size of the payments?

Year-end contributions to an RRSP start at $1,200 and increase each year by 4% thereafter. What amount will be in the RRSP account after 20 years if money earns 5% compounded annually?

A trust fund of $55,000 is invested at 8.4% compounded monthly. It is to be left to accumulate interest for five years after which it is to support, in perpetuity, equal payments to be made at the end of every month. What will be the size of the payments?

Mrs. Henry wants to receive payments of $1,000 per month for 20 years when she retires in 15 years. She wants to know how much she should deposit into an account today to reach her goal if money is worth 5.75% compounded quarterly?

What percentage more money is required to fund an ordinary perpetuity than to fund a 30-year ordinary annuity if the funds can earn 5.8% compounded semi-annually? The perpetuity and the annuity each pay $1,000 semi-annually.