Question

Suppose payments were made at the end of each month into an ordinary annuity earning interest at the rate of 2.5%/year compounded monthly. If the future value of the annuity after 10 years is $60,000, what was the size of each payment? (Round your answer to the nearest cent.) $

Answer 1

Monthly payment= $440.71

Explanation:

Giving the following information:

Mothly interest rate (i)= 0.025/12= 0.00208

Number of periods (n)= 12*10= 120 months

Future Value (FV)= $60,000

To calculate the monthly payment, we need to use the following formula:

Monthly payment= (FV*i) / [(1+i)^(n) - 1]

Monthly payment= (60,000*0.00208) / [(1.00208^120) - 1]

Monthly payment= $440.71