Question

Rebecca would like to set up an account to supplement her parents' retirement income for the next 15 years.

Answer 1

Answer:

Explanation:

a.)

This is an annuity type of question. Using a financial calculator, input the following to find the PV of the Ordinary annuity;

Total duration; N = 15*12 = 300

Monthly rate; I/Y = 7.2%/12 = 0.6%

One-time future cashflow; FV = 0

Recurring monthly payment; PMT = 150

then compute present value; CPT PV = $20,845.24

b.) This is an Annuity Due type of question since the recurring monthly payment occur at the beginning of the month.

Using a financial calculator, change the mode to "BEG"  and input the following to find the PV of the annuity due;

Total duration; N = 15*12 = 300

Monthly rate; I/Y = 7.2%/12 = 0.6%

One-time future cashflow; FV = 0

Recurring monthly payment; PMT = 150

then compute present value; CPT PV = $20,970.31