A 20-year annuity pays $1,950 per month, and payments are made at the end of eac

Question

A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

This problem has two steps. And we will solve this in reverse order.

1) We will first find the PV of annuity using PMT = $1,950, rate = 7% compounded monthly and N = 120.

PV at the end of 10 years = $167,946.39

2) We will use the PV which we calculated above and make it as our FV and solve for PV using PMT = $1,950 and rate = 11% compounded monthly and N = 120.

REAL PV using FV as $167,946.39 = $16,249.77

I hope my solution solves your query.

Regards.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.