Today, you are purchasing a 20-year, 6 percent annuity at a cost of $120,000. The annuity will pay annual payments starting one year from today. What is the amount of each payment?

Question

Quizplus · Accepted Answer

To find the amount of each payment, we can use the formula for present value of an annuity: PV = PMT x (1 - (1+r)^-n) / r, where PV is the present value of the annuity (which is given as $120,000), PMT is the amount of each payment, r is the annual interest rate (6% or 0.06), and n is the number of payments (20). 
Plugging in the values, we get: 
$120,000 = PMT x (1 - (1+0.06)^-20) / 0.06 
Solving for PMT, we get: 
PMT = $10,462.15 
Therefore, the amount of each payment is $10,462.15.

Today, You Are Purchasing a 20-Year, 6 Percent Annuity at a Cost