Question

The executor of a will has to distribute an inheritance of P28 000 to a sole beneficiary in equal monthly payments over 4 years while the beneficiary undertakes university study. How much will each monthly payment be? (assume an annual interest rate of 7.5%.

Answer 1

The executor will have to distributor 28000 to sole beneficiary in equal monthly payments over 4 years.

Calculation of monthly payment is as follow:

Monthly Payment= 28000/ PVAF(r%, n period)

PVAF(r%, n period) is the annuity factor where r% is the rate of interest converted into monthly rate and n refers to number of months.

PVAF(0.625%, 48 months)= (1+r%)ⁿ-1/ (r%*(1+r%)ⁿ)

= (1+0.625%)⁴⁸-1/(0.625%*(1+0.625%)⁴⁸)

= (1.00625)⁴⁸-1/(0.00625*(1.00625)⁴⁸)

= (1.348599151-1)/(0.00625*1.348599151)

= 0.348599151/0.00842875

= 41.358

Therefore:

Monthly Payment = 28000/41.358

= 677.02