Question

How much money is required now to provide an income of $1,600 per month for six years if the money earns interest at 6% p.a. compounding monthly and the first $1,600 payment is payable 2 years from today?

Answer 1

Monthly Payment = $1,600
Time Period = 6 years or 72 months

Annual Interest Rate = 6.00%
Monthly Interest Rate = 6.00% / 12
Monthly Interest Rate = 0.50%

First payment is made 2 years from now

Present Value = $1,600/1.005^24 + $1,600/1.005^25 + … + $1,600/1.005^94 + $1,600/1.005^95
Present Value = $1,600 * (1/1.005)^23 * (1 - (1/1.005)^72) / 0.005
Present Value = $1,600 * 53.800014
Present Value = $86,080.02

Therefore, you need $86,080.02 now to provide for the given income stream.