1. You are looking to purchase a 25 year life insurance policy for $150,000. The policy will pay annually at the end of the year. The current market interest rate is 2.5%. What should the annual payment per year be?

2. Mega Millions has reached a record-breaking jackpot of $1.6 billion. Whoever holds the winning lottery ticket will be given two options: They can collect their winnings as a one-time lump sum that’s less than the value of the total jackpot in this case, and the lump sum payment would be $904,900,000, or they can receive the full amount in annual installments stretched out over 30 years. The annuity will pay out the equivalent value of the lottery 1.6 billion dollars (meaning the present value of all future cashflows). The lottery will guarantee a return of 5%.
What would be the value of the annuity payments? If you were to take the lump sum payment what rate of return would make you indifferent between the annuity and the lump sum payment?

3. You are looking to invest $2million dollars in a deferred annuity. Calculate the annual cash flows of a $2 million, 10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6th) year.

4. Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity due earning a guaranteed 8 percent annually if the payments are to start at the beginning of this year.