Question

1. American General offers a 18-year annuity with a guaranteed rate of 7.91% compounded annually. How much should you pay for one of these annuities if you want to receive payments of $900 annually over the 18 year period?

2. A sailboat costs $29,546. You pay 20% down and amortize the rest with equal monthly payments over a 11-year period. If you must pay 6.6% compounded monthly, what is your monthly payment? How much interest will you pay?

Answer #1

**SOLUTION-****1)**

According to the question the american general offers an annuity for 18 years,

At the rate = 7.91% = 0.0791 compounded annually

The payment received per period = $ 900.

Using the formula

Here, is the rate per period is the present value of all the payments.

is the payment for each period, _{} is the rate per period
and is the number of periods.

Here, _{}= $ 900,

_{} = 0.0791,

_{} = 18

_{}= ?

Substituting the given values in the formula we get,

The payment to get the annually is = **$
8487.98**

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