How much money must she deposit if her money earns 7.8% interest compounded monthly?

Question

Holly Krech is planning for her retirement, so she is setting up a payout annuity with her bank. She wishes to receive a payout of $1100 per month for twenty years. How much money must she deposit if her money earns 7.8% interest compounded monthly?

Answer 1

The formula for annuity payouts compounded non-annually is

 

PV = PMT*(1-(1+r/m)^-mY)/(r/m)

 

Where

PV is the present value

PMT is the periodic payment amount

m is the number of compounding periods in a year

Y is the number of years

r is the interest rate

 

In this case we are given the following values

PMT = 1100

r = 0.078

m = 12

Y = 20

 

 

Substituting the given values

 

PV = 1100*(1-(1+0.078/12)^-12*20)/(0.078/12)

PV = 133,490