Question

Raggy's Inc. offers an annuity due with quarterly payments for 25 years at 8 percent interest. The annuity costs $200,000 today. What is the amount of each annuity payment?

Answer 1

Information provided:

Present value=  $200,000

Time= 25 years*4= 100 quarters

Quarterly interest rate= 8%/ 4= 2%

This is solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

The amount of annuity payment is calculated by entering the below in a financial calculator in BGN mode:

PV= -200,000

N= 100

I/Y= 2

Press the CPT key and PMT to compute the amount of annuity payment.

The value obtained is 4,549.56.

Therefore, the amount of annuity payment is $4,549.56.