If a life company quotes an annuity rate of 5% for Mary and applies a contract charge of €5 per annum on a €200,000 lump sum, what is Mary's annual annuity?

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Multiple Choice

If a life company quotes an annuity rate of 5% for Mary and applies a contract charge of €5 per annum on a €200,000 lump sum, what is Mary's annual annuity?

Explanation:
The main idea is that an annuity rate converts a lump sum into a yearly income, and any contract charges reduce that income. A 5% rate on €200,000 yields €10,000 per year. Subtract the annual contract charge of €5, and Mary receives €9,995 each year. That’s why the answer is €9,995 per annum.

The main idea is that an annuity rate converts a lump sum into a yearly income, and any contract charges reduce that income. A 5% rate on €200,000 yields €10,000 per year. Subtract the annual contract charge of €5, and Mary receives €9,995 each year. That’s why the answer is €9,995 per annum.

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