Question

An annuity providing a rate of return of 4.8% compounded monthly was purchased for $41,000. The annuity pays $400 at the end of each month. What will be the principal portion of Payment 92? (Round your answer to 2 decimal places.)
Principal   $

A

An annuity providing a rate of return of 4.8% compounded monthly was purchased for $41,000. The annuity pays $400 at the end of each month. What will be the principal portion of Payment 92? (Round your answer to 2 decimal places.)
Principal   $

Answer 1

First we need to calculate maturity or duration of the annuity.

Present value	$41,000
Monthly interest rate	0.40%
Monthly payment	$400
Future value	$0
Maturity (in months)	132.17

Calculation

A B 1 2 Present value 3 Monthly interest rate 4 Monthly payment 5 Future value 6 Maturity (in months) 41000 -4.8%/12 400 0 =NPER(B3,B4,-B2,B5,0)

Present value needs to be entered as negative value because it's a cash outflow. this amount you paid to purchase the annuity.

Now using maturity, we can calculate the principal portion of Payment 92.

Present value	$41,000
Monthly interest rate	0.40%
Monthly payment	$400
Future value	$0
Maturity (in months)	132.17
Payment no.	92
Principal portion of Payment 92	$339.38

Calculation

A B 1 2 Present value 41000 3 Monthly interest rate -4.8%/12 4 Monthly payment 400 5 Future value 0 6 Maturity (in months) =NPER(B3,B4,-B2,B5,0) 7 Payment no. 92 8 Principal portion of Payment 92 =PPMT(B3,B7,B6,-B2,0,0)

the principal portion of Payment 92 will be $339.38.