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10 July, 05:42

An ordinary annuity selling at $14,130.15 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 (IN) remains at 8.00% during this time, the annual annuity payment (PMT) will be

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  1. 10 July, 06:45
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    PMT = $1875.00

    Explanation:

    The annuity refers to a series of fixed payments made after an equal interval of time and for a definite time period. The formula for the present value of annuity is,

    For ordinary annuity

    PV of annuity = PMT * [ (1 - (1+IN) ^-n) / IN]

    Plugging in the values for the available variables. We calculate the PMT to be,

    14130.15 = PMT * [ (1 - (1+0.08) ^-12) / 0.08]

    14130.15 = PMT * 7.536078017

    14130.15 / 7.536078017 = PMT

    PMT = $1875.000493 rounded off to $1875.00
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