A 13-year annuity pays $2,800 per month, and payments are made at the end of eac

Question

A 13-year annuity pays $2,800 per month, and payments are made at the end of each month. The interest rate is 12 percent compounded monthly for the first seven years, and 10 percent compounded monthly thereafter.

What is the present value of the annuity? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

A 13-year annuity pays $2,800 per month, and payments are made at the end of each month. The interest rate is 12 percent compounded monthly for the first seven years, and 10 percent compounded monthly thereafter.

Explanation / Answer

Present value of annuity = P×[1-(1÷(1+r)^n))]÷r

= PV of 7 years annuity+ PV of 7 years annuity

= $2,800×[1-(1÷(1+(12%÷12))^84))]÷(12%÷12)+

[$2,800×[1-(1÷(1+(10%÷12))^72))]÷ (10%÷12)]×[(1÷(1+(10%÷12))^72]

= $158,615.65+$83,154.17

= $241,769.82

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