Problema Solution
suppose John sells his house and earns a profit o $600,000. With the profit, he buys a 20 year annunity that earns 6.5% interest compounded monthly. What monthly payment will John get?
Answer provided by our tutors
john invests 600,000 into an annuity.
The annuity is designed to last 20 years before it is depleted.
the annuity earned 6.5% interest per year compounded monthly.
assuming end of month withdrawals, the amount of money john can withdraw each month would be $4,473.44.
Using the TI-BA-II Financial Calculator, the inputs are as follows:
N = 20*12
I/Y = 6.5/12
PV = -600,000
PMT = 0
FV = 0
CPT-PMT to get PMT = 4,473.438813 which rounds to 4,473.44.
Using the manual calculation formula of PAYMENT FOR A PRESENT VALUE, the inputs are as follows:
PAYMENT FOR A PRESENT VALUE
PMT = Payment per time period = what you are trying to find.
PV = Present Value = 600,000
i = Interest Rate per Time Period = 6.5 / 1200
n = Number of Time Periods 20 * 12