An annuity that pays out payments that increase by 0.75% each payment period will be paid out over a 10 year period will be purchased with interest of 6% compounded monthly. If the payments will start at $1000 the first month, how much will need to be in the account to sustain the 10 years of payments?
Calculating the amount needed to sustain the paymenst for 10 years:-
Where, C= First Payment= $1000
r = Periodic Interest rate = 6%/12 =0.5%
g = Growth rate of further payments = 0.75%
n= no of periods = 10years*12 = 120
Present Value = $138,938.44
So, will need to be in the account to sustain the 10 years of payments is $138,938.44
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