Question

Maya buys an annuity due with monthly payments.

a) The annuity lasts 5 years with monthly payments of $200, and i(4) = 10%. How much does Maya pay?

b) The annuity lasts 5 years, i(4) = 10%, and Maya pays $10,000 to buy it. How much are the monthly payments?

c) The annuity lasts 5 years, Maya pays $10,000 to buy it, and monthly payments are $200. What is i(4)?

please include formulas

Answer 1

a

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 200*((1-(1+ 10/1200)^(-5*12))/(10/1200))

PV = 9413.07

b

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

10000= Cash Flow*((1-(1+ 10/1200)^(-5*12))/(10/1200))

Cash Flow = 212.47

c

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

10000= 200*((1-(1+ Interest rate/1200)^(-5*12))/(Interest rate/1200))

Interest rate% = 7.42