Problem 6-48 Variable Interest Rates [LO1] A 20-year annuity pays $1,950 per mon
ID: 2739726 • Letter: P
Question
Problem 6-48 Variable Interest Rates [LO1]
A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 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.)
A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 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.)
Explanation / Answer
Present value of the annuity = 1950/1.009167 + 1950/1.009167^2 + ... + 1950/1.009167^120 + 1950/1.00583^121 + 1950/1.00583^122 + 1950/1.00583^123 + ... + 1950/1.00583^240
Present value of the annuity = $197,751.55