Sebastian has reached his retirement age with a sizable balance of $1,750,000 in

Question

Sebastian has reached his retirement age with a sizable balance of $1,750,000 in his defined contribution 401K account. Sebastian, not being of good health, has set up an annuity that will make equal payments to him at the end of each year, beginning one year from now, for 8 consecutive years. The annuity is set up to have a 5.75% interest rate. Which of the following comes closest to the amount Sebastian will receive from this annuity at the end of each year?

a. $300,665

b. $750,000

c. $217,752

d. $279,031

e. $434,783

Explanation / Answer

Ans)  Sebastian has sizable balance of $1,750,000 in his defined contribution account and that will make him equal payments to him 8 consecutive years then

Annuity factor for 8 years @ 5.75% interest rate is 6.2717

Sebastian will receive from this annuity at the end of each year is 1,750,000/6.2717 = 279,031

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