A woman plans to work for 25 years and to make deposits into a retirement fund at the amount of 100 at the end of each month. The fund earns 6% nominal, converted monthly. The fund will be used to purchase a 20-year annuity immediate at retirement, with the first payment in a month after retirement. Assuming the annuity is purchased at 5% nominal converted monthly, what is the amount of her monthly end-of-month payments during her retirement?

Question

Howard

Business

30 August, 09:45

A woman plans to work for 25 years and to make deposits into a retirement fund at the amount of 100 at the end of each month. The fund earns 6% nominal, converted monthly. The fund will be used to purchase a 20-year annuity immediate at retirement, with the first payment in a month after retirement. Assuming the annuity is purchased at 5% nominal converted monthly, what is the amount of her monthly end-of-month payments during her retirement?

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Answers (1)

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Athena Hawkins · Answer 1

The answer is $457.35

Explanation:

FV = P * ([1 + I]^N - 1) / I.

FV=100 * ([1 + 0.06/12]^ (12*25 - 1) / 0.06/12=$69299.40

PV of an Annuity = C x [ (1 - (1+i) ^-n) / i ]

$69299.40 = C x [ (1 - (1+0.05/12^-12^*20) / 0.05/12 ] = $457.35