Question

1. After 25 years of teaching, Linda Adams has decided to retire and start collecting her pension. The pension fund manager assumes he can earn a 8 percent return on her assets. Her fund has an accumulated value of $370,000 and she is expected to live 19 more years

Based on these expectations, calculate her yearly annuity for the next 19 years. (Enter your answer as a positive number rounded to 2 decimal places.)

Annuity ________

2. The interest rate for a loan of $9,331 that requires five equal annual payments of $2,850 is: (Round your answer to the nearest whole percent.)
  Interest rate _______%

Answer 1

1.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

370,000=Annuity[1-(1.08)^-19]/0.08

370,000=Annuity*9.6035992

Annuity=370,000/9.6035992

=$38527.22(Approx).

2.Let interest rate be x%

At this rate;present value of annual payments=9331

9331=2,850/1.0x+2,850/1.0x^2+..........+2,850/1.0x^5

Hence x=interest rate=16%(Approx).