What would the required monthly payments have been

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Use the Annual Payout Annuity with COLA Formula to find the deposit necessary to receive monthly payouts with an annual cost-of-living adjustment. To use the formula, all figures must be annual figures, including the payout and the annual rate. You can adapt the formula for monthly payouts by using • the future value of a one-year ordinary annuity in place of the annual payout, where pymt is the monthly payout, and • the annual yield of the given compound interest rate in place of the annual rate r. Gary Kersting is about the retire, so he is setting up a payout annuity with his bank. He wishes to receive a monthly payout for the next twenty years, where the payout starts at $1,100 per month and receives an annual COLA of 4%. His money will earn 8.7% compounded monthly. (a) The annual payout is the future value of a one-year ordinary annuity. Find this future value. (Round your answer to the nearest cent.) $ (b) The annual rate r is the annual yield of 8.7% interest compounded monthly. Find this annual yield. (Round your answer to seven decimal places.) % (c) Use the Annual Payout Annuity with COLA Formula to find how much money he must deposit. (Round your answer to the nearest cent.) $ (d) Gary could have saved for his payout annuity with an ordinary annuity. If he had started doing so twenty-five years ago, what would the required monthly payments have been? (The two annuities pay the same interest rate. Round your answer to the nearest cent.) $

Reference no: EM132036937

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