Question

If you put up $26,000 today in exchange for a 8.75 percent, 16-year annuity, what will the annual cash flow be?

Answer 1

Total Initial Deposit	$ 26,000.00
Total of PV for 16 years at 8.75%	8.442338384
Annual Annuity	$    3,079.72

If you put $26000 now and get interest of 8.75% on deposit then you can get annuity payments of $3079.72 for 16 years.

Table of Annuity payments
Year	Beginning balance of deposit	Interest earned	Annual Payments	Reduction in Deposit	Ending balance of deposit
1	$26,000.00	$ 2,275.00	$ 3,079.72	$         804.72	$ 25,195.28
2	$ 25,195.28	$ 2,204.59	$ 3,079.72	$         875.13	$ 24,320.16
3	$ 24,320.16	$ 2,128.01	$ 3,079.72	$         951.70	$ 23,368.45
4	$ 23,368.45	$ 2,044.74	$ 3,079.72	$     1,034.98	$ 22,333.48
5	$ 22,333.48	$ 1,954.18	$ 3,079.72	$     1,125.54	$ 21,207.94
6	$ 21,207.94	$ 1,855.70	$ 3,079.72	$     1,224.02	$ 19,983.92
7	$ 19,983.92	$ 1,748.59	$ 3,079.72	$     1,331.12	$ 18,652.80
8	$ 18,652.80	$ 1,632.12	$ 3,079.72	$     1,447.60	$ 17,205.20
9	$ 17,205.20	$ 1,505.46	$ 3,079.72	$     1,574.26	$ 15,630.94
10	$ 15,630.94	$ 1,367.71	$ 3,079.72	$     1,712.01	$ 13,918.94
11	$ 13,918.94	$ 1,217.91	$ 3,079.72	$     1,861.81	$ 12,057.13
12	$ 12,057.13	$ 1,055.00	$ 3,079.72	$     2,024.72	$ 10,032.41
13	$ 10,032.41	$     877.84	$ 3,079.72	$     2,201.88	$    7,830.53
14	$    7,830.53	$     685.17	$ 3,079.72	$     2,394.54	$    5,435.99
15	$    5,435.99	$     475.65	$ 3,079.72	$     2,604.07	$    2,831.92
16	$    2,831.92	$     247.79	$ 3,079.72	$     2,831.92	$          (0.00)

Amount of interest earned is on the beginning balance of Deposit.

Reduction in deposit balance is calculated by Annuity payment minus interest earned.

The final answer may vary due to round off .

year	PV Factor at 8.75%
1	0.91954
2	0.845554
3	0.777521
4	0.714962
5	0.657436
6	0.604539
7	0.555898
8	0.511171
9	0.470042
10	0.432222
11	0.397446
12	0.365468
13	0.336062
14	0.309023
15	0.284159
16	0.261295
Total	8.442338384

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