Question

An ordinary annuity selling at $10,538.38 today promises to make equal payments at the end of each year for the next twelve years (N). If the annuity’s appropriate interest rate (I) remains at 6.50% during this time, the annual annuity payment (PMT) will be .

Answer 1

Answer:

The annual annuity payment during this time at the rate of 6.50 % is $1291.67

Explanation:

Compute the annual annuity payments (PMT)

Present Value of annuity (PV) = $10538.38

Number of years (n) = 12

Rate (i) = 6.50%

$Present Value (PV) = PMT [1- (1+r)^{n} ]/r]$

$10538.38 = PMT [1- (1+0.0650)^{-12} ]/0.0650$

$Annual Annuity Payments = 0.0650*10538.38/[1- (1+0.0650)^{-12} ]$

Annual Annuity Payments = $1291.67