Question

Assume an interest rate of 5.70% compounded monthly. a. How much money do you need to invest to receive $1,200 at the end of each month for 11 months? $0.00 Round to the nearest cent b. If you would like your payments to last you 19 months, how much less would you have to receive at the end of each month if you invested the same amount as above?

Answer 1

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

i = interest rate per period

n = number of periods

a)

Present value = 1200 * [1-(1+0.057/12)^-11]/(0.057/12)

= 12831.42

b)

=>

12831.42 = monthly payment * [1-(1+0.057/12)^-19]/(0.057/12)

=>

monthly payment = 707.87