Question 622652: Suppose John sells his house and earns a profit of $600.000. With the profit he buys a 20 year annuity that earns 6.5% interest compounded monthly. What monthly payment will John get?
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! john invests 600,000 into an annuity.
The annuity is designed to last 20 years before it is depleted.
the annuity earned 6.5% interest per year compounded monthly.
assuming end of month withdrawals, the amount of money john can withdraw each month would be $4,473.44.
Using the TI-BA-II Financial Calculator, the inputs are as follows:
N = 20*12
I/Y = 6.5/12
PV = -600,000
PMT = 0
FV = 0
CPT-PMT to get PMT = 4,473.438813 which rounds to 4,473.44.
Using the manual calculation formula of PAYMENT FOR A PRESENT VALUE, the inputs are as follows:
PAYMENT FOR A PRESENT VALUE
PMT = Payment per time period = what you are trying to find.
PV = Present Value = 600,000
i = Interest Rate per Time Period = 6.5 / 1200
n = Number of Time Periods 20 * 12
The manual calculation formula can be found in the following tutorial:
http://www.algebra.com/algebra/homework/Finance/FINANCIAL-FORMULAS-101.lesson
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