Question

8. Loren already knows that he will have $500,000 when he retires. If he sets up a payout

Answer 1

The annuity could provide $221.19 each month

Step-by-step explanation:

The ANNUITY FORMULA is $P_{t}=\frac{d[(1+\frac{r}{n})^{nt}-1]}{\frac{r}{n}}$ , where

1. $P_{t}$ is the balance in the account after t years

2. d is the regular deposit (the amount you deposit each year or month

    or .........)

3. r is the annual interest rate in decimal

4. n is the number of compounding periods in one year

5. t the number of years

∵ Loren knows that he will have $500,000 when he retires

∴ $P_{t}$ = $500,000

∵ he sets up a payout  annuity for 30 years in an account paying 10%

  interest

∴ t = 30 years

∴ r = (10/100) = 0.1

∵ The annuity  could provide each month

∴ n = 12

Substitute the values above in the formula

∴ $500,000=\frac{d[(1+\frac{0.1}{12})^{(12)(30)}-1]}{\frac{0.1}{12}}$

∴ $500,000=\frac{d[(1.00833333)^{360}-1]}{0.00833333}$

∴ 500,000 = d [2260.487925]

- Divide both sides by 2260.487925

∴ d = $221.19

The annuity could provide $221.19 each month

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