6 Targey is considering an annuity which costs 73600 today T

6. Targey is considering an annuity which costs $73,600 today. The annuity pays $5,700 a year. The rate of return is 6 percent. What is the length of the annuity time period? (Do not round intermediate calculations.) 12.79 years O 4.71 years 12.91 years 1971 yeas 25.58 years

Solution

6)

ANSWER = E) 25.58

EXPLN:

annuity cost today = 73600

Annuity payment each year = 5700

Interst rate = 6 years

Annuity value today = Annual payment * PVIFA ( r, n)

73600 = 5700 * PVIFA (0.06, n)

73600/5700 = PVIFA (0.06,n)

12.912 = PVIFA (0.06,n)

Reference to annuity table we get n = 12.912

or solve using trial and error method, PVIFA = [1 - (1 + r)^-n] / r

8)

Answer = a) 13.20 Percent

Monthly charges = 1.1Percent

Annual Percent = 1.1 * 12 = 13.20 Percent

9)

Answer = d)14.58 Percent

Effective interest rate = (1 + i/n)ⁿ - 1

15.60% = (1 + i/12)¹² - 1

1.156 = (1+ i/12)¹²

(1.156)^-12 = (1 + i/12)

1.012154 = 1 + i/12

0.012154 = i/12

0.1458 = i

i = 14.58 %