Question

You inherited a 15-year annuity-immediate with level annual payments. You are told that the accumulated value of this annuity at the end of 15 years is 38,000. You are also told that the present value at the time of inheritance is $ 15,000. Determine the level of annual payments. Also, determine the annual effective interest rate earned by this trust.

Answer 1

r = [Future value /present value]^ 1/n             -1

     =[38000/15000]^1/15      -1

      = [2.53333]^ .06667    -1

      = 1.0639-1

      = .0639 or 6.39%

Level of monthly payment = Future value /FVAD 6.39%,15

                   = 38000 / 23.97938

                   = 1584.69