Personal Finance

Actuarial science/time value of money QUESTION

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Actuarial science/time value of money QUESTION

Just a curious situation: suppose someone will give you $50,000/yr for 20 years, what is the lumpsum amount you're willing to take right now instead of having to wait out the whole 20 years?
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Jun 15, 2017
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50 000$ per year for 20 years or 50 000$ over 20 years?

Also whats your age, sex and what interest do you want?
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acepoker999 wrote: 50 000$ per year for 20 years or 50 000$ over 20 years?

Also whats your age, sex and what interest do you want?
The former. The main factor is don't want to wait the whole 20 years so wondering what is a good lumpsum replacement.
Hard work, inheritance, interest on interest accumulating, and stock and real estate speculation. It's all good.
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Jun 15, 2017
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Whats your age, sex and what interest do you want?

I need these to calculate the present value of it. Since mortality is affected by sex and age.

I need the mortality because if you die, the payments of 50 000 stops. Unless they are guaranteed for the 20 years then mortality doesnt play a factor.
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acepoker999 wrote: Whats your age, sex and what interest do you want?

I need these to calculate the present value of it. Since mortality is affected by sex and age.

I need the mortality because if you die, the payments of 50 000 stops. Unless they are guaranteed for the 20 years then mortality doesnt play a factor.
Mortality is not a factor, let's assume it is transferrable to any beneficiary. Don't understand the interest question. TX.
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tranquility922 wrote: Mortality is not a factor, let's assume it is transferrable to any beneficiary. Don't understand the interest question. TX.
You're asking us to calculate the present value of an annuity, which requires that we know the payment per period, the number of periods, and the interest rate. You've only given us the payment and number of periods.
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Piro21 wrote: You're asking us to calculate the present value of an annuity, which requires that we know the payment per period, the number of periods, and the interest rate. You've only given us the payment and number of periods.
Sorry, I'm obviously bad at this lol. I dunno, we could try the avg bank savings rate?

Also besides the strict AS answer, wonder what ppl (most RFDers are somewhat financially-astute) feel is an acceptable lumpsum in lieu of waiting 20 years.
Hard work, inheritance, interest on interest accumulating, and stock and real estate speculation. It's all good.
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50000$/ year, paid at end of each year, for 20 years has a present value of about 623000$ assuming 5% interest. The interest can be seen as inflation (AKA) things are more expensive and thus your 50 000$ will buy you less thing in year 10 than it did in year 2-3.

https://www.investopedia.com/terms/p/pr ... nnuity.asp

The website has a formula which you can use. For your case PMT = 50000, n = 20 and r=interest rate. You can then plug the formula and number into a calculator and run the scenarios youself.

This question isnt actuarial science but more financial/annuities.

If you were to include mortality then actuaries would be involved in it.

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tranquility922 wrote: Just a curious situation: suppose someone will give you $50,000/yr for 20 years, what is the lumpsum amount you're willing to take right now instead of having to wait out the whole 20 years?
Did you win a $1,000,000 lottery that will pay out over 20 years? Winking Face

Anyways, you still need the annuity investment rate for that $50,000 payment. Assuming it is 4%, it would be worth $679,516 if it starts paying out a year from now or $706,696 if it starts paying out immediately.

You can use an online TVM calculator to play around with other values.

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