Question

An individual deposited $400,000 into an account which earns 9.6% compounded quarterly. If the person wants to receive quarterly payments of $10,000 at the end of every three months, determine the number of full payments the person will receive.

Answer 1

Present value of annuity= payment per period * [1-(1+i)^-n]/i

i = interest rate per period

n = number of

=>

Present value = 400000

=>

10000 * [1-(1+0.096/4)^-n]/(0.096/4) = 400000

=>

number of payments = - ln(0.04)/ln(1+0.096/4)

= 135.72

= 136 payments