What amount will be required to purchase a 20-year annuity paying $2500 at the end of each month, if the annui?
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What amount will be required to purchase a 20-year annuity paying $2500 at the end of each month, if the annuity provides a return of 6.75% compounded annually?
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Answer:
effective monthly interest rate = (1.0675^(1/12) -1) = r (say) PV = PMT(1-(1+r)^-n)/r = 2500(1- (1.0675^(1/12))^-240)/(1.0675^(1/12)-1) = $333,998.96, say $334,000 <---------
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