If you want to purchase an annuity providing an income of $2,000 at the end of each month for five years, how much will it cost if the purchase funds earn 18% compounded monthly?
A) $192,429.30
B) $78,760.54
C) $80,681.00
D) $4,886.44
E) $818.60

Question

Quizplus · Accepted Answer

The cost of purchasing an annuity can be calculated using the present value formula for annuities. Given an annuity that pays $2,000 at the end of each month for five years (60 months) with an interest rate of 18% compounded monthly, the monthly interest rate is 18%/12 = 1.5%. Using the present value of an annuity formula: $P = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right)$, where PMT = $2,000, r = 0.015 (1.5%), and n = 60, the calculation yields approximately $78,760.54.

If You Want to Purchase an Annuity Providing an Income