Concept explainers
Annuity Find the amount of an annuity that consists of 24 monthly payments of $500 each into an account that pays 8% interest per year, compounded monthly.
To find: The amount of annuity for the given data.
Answer to Problem 4E
The amount of annuity is $12,966.59.
Explanation of Solution
Given:
Monthly Payments = $500
Interest Rate = 8% per year (or 0.6667% per month)
Number of Payments = 24 payments
Formula:
Here,
Aj = Future Value of Annuity
R = Periodic Payment
i = Interest Rate
n = Number of Years/Payments
Annuity: An annuity is a form of financial contract that are typically used for retirement plans by the insurance companies which assures guaranteed payment to the insurer. It is paid by the insurance company for a certain period of time or on lifetime basis.
Calculation:
The amount of annuity is calculated by adding 1 plus the interest rate with the power of number of years and the result is subtracted by 1, the whole result is divided by interest rate and the end value is multiplied with period payment.
Therefore, the amount of annuity is $12,966.59.
Chapter 12 Solutions
Precalculus: Mathematics for Calculus - 6th Edition
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