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Science-Related Homework Help Mathematics Topic started by: Hillier on Nov 27, 2017



Title: Silva is contemplating to buy a 20 year annuity paying $2500 at the end of each month. What amount ...
Post by: Hillier on Nov 27, 2017
Silva is contemplating to buy a 20 year annuity paying $2500 at the end of each month. What amount will be required to purchase the annuity, if the annuity provides a return of 6.75% compounded annually?
A) $334 000
B) $47 246
C) $600 000
D) $37 037
E) $567 436


Title: Re: Silva is contemplating to buy a 20 year annuity paying $2500 at the end of each month. What ...
Post by: Axy on Nov 27, 2017
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Title: Re: Silva is contemplating to buy a 20 year annuity paying $2500 at the end of each month. What amount ...
Post by: Hillier on May 14, 2018
Correct, thank you


Title: Re: Silva is contemplating to buy a 20 year annuity paying $2500 at the end of each month. What ...
Post by: lizblackwelder on Dec 20, 2021
Given about an annuity,

Monthly payment PMT = $2500

term period t = 20 years

interest rate EAR = 6.75% compounded annually

First we need to calculated monthly rate.

So, Monthly rate r = ((1+EAR)^(1/12)) - 1 = ((1.0675^(1/12)) - 1) = 0.5458%

So, price of the annuity is calculated using PV formula of ordinary annuity

PV = PMT*(1 - (1+r)^(-n*t))/r

where r = 12 months in a year

So, price of the annuity = 2500*(1 - (1 + 0.005458)^(-12*20))/0.005458 = $333998.96