Life Needs Analysis & Client Situation question: up completely by the last payment

LifeNeeds Analysis & Client Situation

Mei, 44, wants her family to receive $56,000 a year after tax for 15 years if she dies, paid at the end of each year. The proceeds are assumed to earn 3% a year and may be used up completely by the last payment. Ignoring her other assets, how much capital is required?

A $668,524
B $688,580
C $840,000
D $1,866,667

Show the answer and explanation

Answer: A. $668,524

This is the present value of an ordinary annuity: $56,000 × [1 − 1.03^−15] ÷ 0.03 = $668,524. Because the capital is allowed to run down, it is not a perpetuity; $56,000 ÷ 0.03 = $1,866,667 would preserve capital forever. $688,580 treats the payments as made at the start of each year, and $840,000 ignores the 3% the unspent capital earns. Source: CISRO LLQP Curriculum (May 2015; current as at 12 Oct 2026), Life component 1.3 (income replacement approach; impacts of investment returns); CISRO LLQP description (2010), objective 58.1 (present value calculations) (as at 12 Oct 2026).

Common mistake

Using the perpetuity formula when the stem says the capital may be used up.

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Original study material mapped to the public CISRO curriculum; not a real test question.Not affiliated with CISRO, CCIR or any provincial insurance regulator. Verify figures and rules against current guidance before relying on them.