Question

A Asset Valuation = Price

B Wealth Accumulation

C Funding – Lump sum funds lump sum

D Funding – Lump sum funds ordinary level annuity

E Funding – Lump sum funds delayed level annuity

F Funding – Ordinary level annuity funds lump sum

G Funding – Ordinary level annuity funds delayed level annuity

H Choosing Among Alternatives

Classify the problem as one of the above types. Choose Only One

You need $15,000 in 12 months to pay for your property taxes. How much must you invest in months 1 to 12 to exactly pay for your property tax if your investments earn 3% APR, compounded monthly?

Answer 1

Solution

This is Ordinary level annuity funds lump sum

Future value of annuity=Annuity amount*(((1+r)^n)-1)/r

where

r-intrest rate per period=3/12=.25% per month

n-number of periods=12

Future value of annuity=15000

Putting values

15000=Annuity amount*(((1+.0025)^12)-1)/.0025

Solving we get annuity amount=$1232.91(Amount to be invested every month)