Question

2) If you wish to save up $220,000 using an annuity, what monthly payment is required into the

annuity if the annuity has an APR of 8.0% compounded annually and you wish to reach your
savings goal in 30 years?

Answer 1

$936.91

Explanation:

To find the monthly payment required to save up $220,000 using an annuity with an APR of 8.0% compounded annually over 30 years, we can use the following formula:

payment = (goal * rate) / (1 - (1 + rate) ^-n)

In this formula, "goal" is the savings goal, "rate" is the monthly interest rate, and "n" is the number of payments.

To find the monthly payment, we need to first convert the annual interest rate to a monthly rate by dividing it by 12:

rate = 8.0% / 12 = 0.0067

Next, we need to find the number of payments by multiplying the number of years by the number of payments per year:

n = 30 years * 12 payments/year = 360 payments

Substituting these values into the formula, we get:

payment = (goal * rate) / (1 - (1 + rate)^-n)

= (220,000 * 0.0067) / (1 - (1 + 0.0067)^-360)

= $936.91

The monthly payment required to save up $220,000 using an annuity with an APR of 8.0% compounded annually over 30 years is $936.91.