Question

Juan purchases an annuity for 4790 dollars that will make 18 annual payments, the first to come in one year. If the effective rate of interest is 8.2 percent, how much is each annual payment?

A) $473.24
B) $583.67
C) $361.42
D) $514.89

Answer 1

To calculate the annual payment in an annuity, use the present value formula and calculate using the given values of the annuity. In this case, the annual payment is approximately $583.67.

Step-by-step explanation:

To calculate the amount of each annual payment in an annuity, we will use the present value formula:

Present Value = Payment/(1 + interest rate)^n

Given that Juan purchases an annuity for $4790, with 18 annual payments and an interest rate of 8.2%, we can calculate:

Annual Payment = Present Value * (1 + interest rate)^n

Annual Payment = $4790 * (1 + 0.082)^18

Calculating this, we find that each annual payment is approximately $583.67. Therefore, the correct answer is B) $583.67.