Question

Suppose payments were made at the end of each month into an ordinary annuity earning interest at the rate of 6%/year compounded monthly. If the future value of the annuity after 10 yr is $55,000, what was the size of each payment?

Answer 1

From S(n) = R[(1+i)^n - 1]/i where R = the periodic payment, n = the number of periods, i = the periodic interest in decimal form and S(n) = the accumulated sum, you have S(n) = $55,000, n = 10(12) = 120 and i = 6/(100(12)) = .005.

Solve for R