Assume that at retirement you have accumulated $500,000 in a variable annuity contract.The assumed investment return is 6%, and your life expectancy is 15 years.What is the hypothetical constant-benefit payment?
A)$30,000.00
B)$33,333.33
C)$51,481.38
D)$52,452.73

Question

Quizplus · Accepted Answer

To calculate the constant-benefit payment, we need to use the present value factor formula:
Constant-benefit payment = (Account balance) / (Present value factor)
PV factor = (1 - (1 + r)^(-n)) / r
where r = assumed investment return = 6%
n = number of payment periods = life expectancy = 15 years
Plugging in the numbers, we get:
PV factor = (1 - (1+0.06)^(-15)) / 0.06 = 9.35345022
Constant-benefit payment = 500,000 / 9.35345022 = $51,481.38
Therefore, the best choice is C.

Assume That at Retirement You Have Accumulated $500,000 in a Variable