Petty Marine Co. has a long term plan to expand to a second location that’s actu

Question

Petty Marine Co. has a long term plan to expand to a second location that’s actually near some water, so they want to start a monthly annuity to save $150,000 in capital over 10 years. The best rate they can find is 13%. Find the monthly payment. Round to the nearest cent. Petty Marine Co. has a long term plan to expand to a second location that’s actually near some water, so they want to start a monthly annuity to save $150,000 in capital over 10 years. The best rate they can find is 13%. Find the monthly payment. Round to the nearest cent.

Explanation / Answer

Future value of annuity formula is

FV = P { [(1 + r)n - 1] / r }

Where FV = future value = 150000

P is periodic payment (Monthly)

r is rate of interest per period = 0.13 / 12

n = number of periods = 10 * 12 = 120

Putting all these values in above formula we get,

150000 = P { [(1 + 0.13/12)120 - 1 ] / 0.13/12 }

150000 = P { 244.0369}

P = 150000 / 244.0369

P = 614.66

Monthly payment = $614.66

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