Petty Marine Co. has a long-term plan to expand to a second location that's actually near some
Water, so they want to start a monthly annuity to save $160,000 in capital over 6 years. The best rate
They can find is 8%. Find the monthly payment.
A)$5,920.73
B)$3,947.15
C)$1,738.65
D)$7,894.30

Question

Quizplus · Accepted Answer

To find the monthly payment for an annuity, we use the formula for the present value of an annuity: $PMT = \frac{PV}{\frac{1 - (1 + r)^{-n}}{r}}$, where PMT is the monthly payment, PV is the present value or the amount they want to save ($160,000), r is the monthly interest rate (8% annually, so $0.08/12$ monthly), and n is the total number of payments (6 years * 12 months/year = 72 payments). Plugging in the values: $PMT = \frac{160,000}{\frac{1 - (1 + 0.08/12)^{-72}}{0.08/12}}$, which calculates to approximately $1,738.65.