Question

1. You will make deposits of $1,000 at the end of each year for 40 years in your investment account. After the 40th deposit, you will immediately withdraw all money from the account to buy a retirement annuity for 35 years with equal annual payments (paid at year-end) from a life insurance company. If the annual rate of return over the entire period (75 years) is 5%, how much is the annual payment from the insurance company?
2. The amount of your 25-year mortgage loan is $500,000, and the interest rate is 6% p.a. How much is your monthly loan payment? How much interest will you pay for the 3rd year?

Answer 1

1.

Calculating Future Value at the end of Year 40,

Using TVM Calculation,

FV = [PV = 0, PMT = 1,000, T = 40, I = 0.05]

FV = $120,799.77

Calculating Annual Withdrawal,

Using TVM Calculation,

PMT = [PV = 120,799.77, T = 35, I = 0.05, FV = 0]

PMT = $7,377.45

Annual Withdrawal = $7,377.45

2.

Calculating Monthly Payment,

Using TVM Calculation,

PMT = [PV = 500,000, T = 300, I = 0.06/12, FV = 0]

PMT = $3,221.51

Monthly Payment = $3,221.51