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An annuity providing a rate of return of 6
An annuity providing a rate of return of 6.7% compounded monthly was purchased for $64,000. The annuity pays $590 at the end of each month. How much principal will be repaid in the fifth year? (Do not round the intermediate calculations. Round your answer to the nearest cent.)
Principal repaid in the fifth year $
Expert Solution
Computation of Future Value using FV Function in Excel:
=-fv(rate,nper,pmt,pv)
Here,
FV = Future Value = ?
Rate = 6.7%/12
Nper = 5 years*12 months = 60 months
PMT = $590
PV = 0
Substituting the values in formula:
=-fv(6.7%/12,60,590,0)
FV or Future Value = $47,471.42
So, Value after 5 years is $41,913.44
Principal repaid in the 5th year = $64,000-$41,913.44 = $22,086.56
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