Question

Holly Krech is planning for her retirement, so she is setting up a payout annuity with her bank. She wishes to receive a payout of $1,400 per month for twenty years. (Round your answers to the nearest cent.) (a) How large a monthly payment must Holly Krech make if she saves for her payout annuity with an ordinary annuity, which she sets up thirty years before her retirement? (The two annuities pay the same interest rate of 7.8% compounded monthly.) (b) How large a monthly payment must she make if she sets the ordinary annuity up twenty years before her retirement?

Answer 1

1.
=1400/(7.8%/12)*(1-1/(1+7.8%/12)^(12*20))*(7.8%/12)/((1+7.8%/12)^(12*30)-1)=118.706824034679

2.
=1400/(7.8%/12)*(1-1/(1+7.8%/12)^(12*20))*(7.8%/12)/((1+7.8%/12)^(12*20)-1)=295.67936833945