Betty Bronson has just retired after 25 years with the electric company. Her tot

Question

Betty Bronson has just retired after 25 years with the electric company. Her total pension funds have an accumulated value of $270,000, and her life expectancy is 15 more years. Her pension fund manager assumes he can earn a 11 percent return on her assets. What will be her yearly annuity for the next 15 years? Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

Solution:

PMT = P X r x (1+r)^n / ((1+r)^n - 1)

PMT=Yearly annuity, P = Principal=270000 , r = interest rate=0.11,n=number of years =15

= 270000 x 0.11 x (1+.11)^15/((1+.11)^15 – 1)

Yearly annuity=$37547.61

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