Question

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An insurance company client deposits $1000,000 for an annuity payment of $6000 per month. The annual...

An insurance company client deposits $1000,000 for an annuity payment of $6000 per month. The annual contracted discount rate of 4% is compounded monthly. The insurance company fee is 2% of the deposit.

a. How many months does the annuity last?

b. What is the formula for n?

Solutions

Expert Solution

a:  Using financial calculator
Input:

PV = -1000000*(1-0.02) = -980,000

PMT = 6000

I/Y = 4/12

Solve for N as 236.26

The annuity lasts for 236.26 months

b: Formula for N in excel is =NPER(4%/12,6000,-980000)

It can also be computed by using the following formula

PV of annuity = Annuity*(1-1/(1+rate)^n) /rate

jeff jeffy answered 2 years ago
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