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30 September, 07:48

A 15-year annuity pays $1,475 per month, and payments are made at the end of each month. If the interest rate is 9 percent compounded monthly for the first seven years, and 6 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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  1. 30 September, 11:36
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    First of all we shall calculate the present value of an annuity (at the end of 7 years) of 1475

    at interest rate of 6/12 =.5 % for total instalment of 12 x 8 = 96 (6% compounded monthly)

    rate of intt. 5%, no of instalment 96

    PV of annuity of 1475

    = 112252.66

    This amount has to be discounted at 9 % to present value for 7 years

    or calculated at 9/12 =.75% for 84 instalment

    PV of 112252.66

    = 59925.55

    Now, we shall calculate PV of annuity of 1475 for 7 years compounted monthly (rate of intt. 75 %, no of instalment 84)

    PV of annuity of 1475

    = 91671.84

    Total value

    = 59925.55 + 91671.84

    = 151597.39
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