Accounting/Business Finance

17. Annuities are attractive investment vehicles for retirement savings, as many people prefer an income stream in retirement to a lump sum in the bank. It’s easy to trade one for the other by purchasing an annuity for its discounted value from a bank or an insurance company.

Lisa Montgomery just retired at age 65 with retirement savings of $750,000. She thinks she’ll live to be 85 and would like a guaranteed monthly income until then. Her back is offering annuity investments discounted at 6% compounded monthly. How much monthly income will Lisa have if she invests the entire sum in an annuity?


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