Suppose that you are insured for R 150 000 in the event of an accident. The insurance company, upon accident, tells you that this amount will be paid out in the form of an annuity at the end of each month for the next 3 years. If interest is calculated at 12.5% p.a. compounded monthly then what will the monthly payment be?

1 answer

To calculate the monthly payment, we need to use the formula for the present value of an annuity:

PV = Pmt * [(1 - (1 + r)^-n) / r]

Where:
PV = Present value of the annuity (R 150 000)
Pmt = Monthly payment
r = Monthly interest rate (12.5% / 12 = 1.0417% or 0.010417)
n = Number of months (3 years * 12 = 36 months)

Substitute the values into the formula:

R 150 000 = Pmt * [(1 - (1 + 0.010417)^-36) / 0.010417]

R 150 000 = Pmt * [(1 - 0.75313) / 0.010417]

R 150 000 = Pmt * [27.9234]

Pmt = R 150 000 / 27.9234

Pmt ≈ R 5 375.93

Therefore, the monthly payment will be approximately R 5 375.93.
Similar Questions
    1. answers icon 1 answer
  1. Explain itInsurance is a contract between an individual or entity (the insured) and an insurance company (the insurer), in which
    1. answers icon 1 answer
  2. Which of the following is a result of the Banking Act of 1935?(1 point)Responses Depositor funds are insured against potential
    1. answers icon 1 answer
  3. Which of the following best describes term life insurance?Question 10 options: A) The insured pays a premium for a specified
    1. answers icon 1 answer
more similar questions