Homework Answers
a)
Ordinary annuity
Since incomes provided are at the END of each month, it is a case of ordinary annuity. If it was at the beginning, it would have been annuity due
b)
Number of periods = 35 * 12 = 420
Rate = 7.4% / 12 = 0.616667%
Present value = Annuity * [1 - 1 / (1 + r)n] /r
2,500,000 = Annuity * [1 - 1 / (1 + 0.00616667)420] / 0.00616667
2,500,000 = Annuity * [1 - 0.075619] / 0.00616667
2,500,000 = Annuity * 149.899547
annuity = $16,677.83
Income will be $16,677.83
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