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1) What is the future value of a $800 annuity payment over six years if interest rates are 10 percent? 2) You have just applied for a 30-year $100,000 mortgage at a rate of 10%
1) What is the future value of a $800 annuity payment over six years if interest rates are 10 percent?
2) You have just applied for a 30-year $100,000 mortgage at a rate of 10%. What must the annual payment be?
Expert Solution
1) Computation of the future value:-
Future value = Annuity*(((1+rate)^n-1)/rate)
= $800*(((1+10%)^6-1)/10%)
= $800*7.7156
= $6,172.49
2) Computation of the annual payment:-
Loan amount = Annual payment*((1-1/(1+rate)^n)/rate)
$100,000 = Annual payment*((1-1/(1+10%)^30)/10%)
Annual payment = $100,000 / 9.4269
= $10,607.92
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