A 15-year annuity pays $1,650 per month, and payments are made at the end of each month. If the interest rate is 10 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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Business

Makenzie

5 August, 03:18

A 15-year annuity pays $1,650 per month, and payments are made at the end of each month. If the interest rate is 10 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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Santana · Answer 1

The present value of the annuity is $161,951.17

Explanation:

Annual Interest for 7 years = 10%

Monthly Interest = 10% / 12 = 0.833%

Annual Interest for next 8 years = 6%

Monthly Interest = 6%/12 = 0.5%

Present Value = 1,650/1.00833 + 1650/1.008333^2 + ... + 1650/1.00833^84 + [1650/1.005 + 1650/1.005^2 + ... + 1650/1.005^96] * (1/1.00833^84)

Present Value = [1650 * (1 - (1/1.00833) ^84) / 0.00833] + [1650 * (1 - (1/1.005) ^96) / 0.005] * (1/1.00833^84)

Present Value = $161,951.17

Therefore, The present value of the annuity is $161,951.17.