Question

Raina wants to save money to buy a motorcycle. She invests in an ordinary annuity that earns 2.4 % interest , compounded monthly. Payments will be made at the end of each month. How much money will she need to pay into the annuity each month for the annuity to have a total value of $5000 after 3 years? Do not round intermediate computations, and round your final answer to the nearest cent. If necessary, refer to the list of finandial formulas.

Answer 1

She need to pay $134 into the annuity each month for the annuity to have a total value of $5000 after 3 years.

Step-by-step explanation:

Total value of annuity after = $5,000

Interest rate = 2.4% = 0.024 compounded annually

Number of year = 3 years

Future Value of Annuity = P [ ( ( ( 1 + r )^n)-1 ) / r ]

$5,000 = P [ ( ( ( 1 + 0.024/12 )^3x12 )-1 ) / 0.024/12 ]

$5,000 = P [ ( ( ( 1 + 0.002 )^36 )-1 ) / 0.002 ]

$5,000 = P X 37.29

P = $5,000 / 37.29

P = $134.1 = $134