Question

Betty and Bob buy a membership on the WORLDEX, costing $550,000, by making payments to the bank at the end of June and at the end of December for 11 years. What should these equal payments be? Your final answer should be correct to 2 places after the decimal point. interest rates are 12% per annum compounded semiannually.

The payments are ________

Answer 1

The problem is asking to calculate the annuity amount paid semi-annually

The formula is

PV = 550,000

r = 12%/2 (since semi annually)

n = 11*2 = 22 installments

= (.06 * 550,000)/[1-(1+.06)^-22]

= $ 45,675.06 every installement

Here it is assumed that the present value of the cost of ticket is 550000

If the the cost of the membership remains the seam i,e if the value at he end of 11 years is 550000

then the payments would be $12675.06 (using pmt formula in excel)

PMT(0.06,22,,550000,0)