16. What is the future value of a 10-year ordinary annuity of $500 per month yea

Question

16. What is the future value of a 10-year ordinary annuity of $500 per month year assuming an interest rate of 6% compounded monthly per year and then left for 5 more years to compound annually at 7%? A retirement home now costs $220,000. Inflation is expected to run at 4% per year over the next 25 years when you plan to retire. If you can earn 6% per year, but compounded monthly, how much will you have to deposit at the end of each month for the next 25 years, to have the money needed for to buy the home at retirement? 17,

Explanation / Answer

1.

PMT=500

N=10*12=120

I/Y=6%/12=0.5%

CpT FV=81939.67

PV=81939.67

N=5

I/Y=7%

CPT FV=114924.63

2.

PV=220000

N=25

I/Y=4%

PMT=0

CPT FV=586484

N=12*25=300

I/Y=6%/12=0.5%

FV=586484

PV=0

CPT PMT=846.30

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