Question

(b) On 48th birthday Mr. Mizan decides to make a gift of Tk. 5000 to a hospital. He decides to save this amount by making equal annual payments up to and including his 60th birthday to a fund, which gives 3.5% compound interest, the first payment being made at once. Calculate the amount of each annual payment.

Answer 1

Information provided:

Future value= $5,000

Time= 60 years - 48 years= 12 years

Yield to maturity= 3.5%

The question pertains to annuity due since first payment is made at once.

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 2ndBGN 2ndSET on the Texas BA II Plus calculator.

The annual payment is calculated by entering the below in a financial calculator:

FV= 5,000

N= 12

I/Y= 3.5

Press the CPT key and PMT to compute the annual payment.

The value obtained is 342.42.

Therefore, the amount of each annual payment is $342.42.