In: Finance
Anton will deposit $1,000 into a savings account at the beginning of each month for the next 10 years. In return, he receives a payment of X at the end of each year forever, beginning at the end of the 11th year. Assuming an annual effective rate of discount of 5% for both accounts, determine X.
Future value of Annuity due = Amount * ( ( 1 + Interest per month)^periods -1) * (1 + Interest per month) / Interest per month
Future value of Annuity due = 1000 * ( 1.004167^120 -1) * (1.004167) / 0.004167
Future value of Annuity due = 1000 * 0.64701 * (1.004167) / 0.004167
Future value of Annuity due = $155929.29
2. Value of X = Future value of annuity due * Interest rate
Value of X = 155929.29 * 5 %
Value of X = $7796.46