Problem 6-48 Variable Interest Rates [LO1] A 20-year annuity pays $1,950 per mon

Question

Problem 6-48 Variable Interest Rates [LO1]

A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A 20-year annuity pays $1,950 per month, and payments are made at the end of each month. If the interest rate is 11 percent compounded monthly for the first ten years, and 7 percent compounded monthly thereafter, what is the present value of the annuity? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Present value of the annuity = 1950/1.009167 + 1950/1.009167^2 + ... + 1950/1.009167^120 + 1950/1.00583^121 + 1950/1.00583^122 + 1950/1.00583^123 + ... + 1950/1.00583^240

Present value of the annuity = $197,751.55

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