Question

An insurance settlement of $1.5 million must replace Trixie Eden's income for the next 30 years. What income will this settlement provide at the end of each month if it is invested in an annuity that earns 8.5%, compounded monthly

Answer 1

Answer:

$11533.70

Explanation:

Given:

Present value = $1.5 million = $1,500,000

interest = 8.5%

Time = 30 years

Now,

we know

$\textup{Present value}=P\times\frac{(1-(1+\frac{i}{12})^{-12t})}{\frac{i}{12}}$

where, P is the monthly income

on substituting the respective values, we get

$1,500,000=P\times\frac{(1-(1+\frac{0.085}{12})^{-12\times30})}{\frac{0.08}{12}}$

or

$1,500,000=P\times130.053$

or

P = $11533.70