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SHOW ALL WORK Rebecca would like to set up an account to supplement her parents’ retirement...

SHOW ALL WORK

Rebecca would like to set up an account to supplement her parents’ retirement income for the next 15 years.

(a) If the account earns 7.2 percent compounded monthly, how much will Rebecca have to deposit today so that her parents are paid $150 at the end of each month?

(b) How much would she have to deposit if her parents wanted to receive the $150 payment at the beginning of each month?

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Answer #1

a). The required deposit is calculated using the following present value of ordinary annuity(PVA ordinary) equation

PVA of ordinary annuity =  

Where, P is periodic payment

r is interest rate

t is number of years

n is frequency of occurence in a year

Therefore, PVA(ordinary) =

PVA(ordinary) =

PVA(ordinary) =

PVA(ordinary) = $16482.67

The required deposit amount = $16482.67

b). The required deposit for beginning of the month annuity is calculated using PVA due equation

PVA due =

  

= $16581.57

The required deposit is $16581.57

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