How much will it cost to purchase a 20-year indexed annuity in which the end-of-quarter payments start at $5,000 and grow by 2% compounded quarterly? Assume that the money used to purchase the annuity earns 6% compounded quarterly.

Learning Objectives

• Determine the eventual financial accumulation of ordinary and deferred annuities, especially those experiencing growth at a compounded interest rate.
• Acquire knowledge on the effect of compounding periodicity on the augmentation of investment and savings growth.
• Assess the financial feasibility and cost of purchasing indexed annuities with varying compounding rates.