Sarafina is making monthly payments into an annuity. She wants to have $900 in the fund to buy a new convection range in six months, and the account pays 4.8% annual interest. What are her monthly payments to the account? To have $900 in the fund in six months, her monthly payments must be $ (Round up to the nearest cent.)
Sarafina is making monthly payments into an annuity. She wants to have $900 in the fund to buy a new convection range in six months, and the account pays 4.8% annual interest. What are her monthly payments to the account? To have $900 in the fund in six months, her monthly payments must be $ (Round up to the nearest cent.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Understanding Annuity Payments: A Practical Example**
**Scenario:**
Sarafina is making monthly payments into an annuity. Her goal is to have $900 in the annuity fund in six months to purchase a new convection range. The account offers an annual interest rate of 4.8%.
**Problem:**
What should Sarafina's monthly payments be to achieve her goal of $900 in six months?
**Instructions:**
To determine Sarafina’s monthly payments, consider the following:
1. **Interest Rate Conversion:** The annual interest rate is 4.8%. To find the monthly interest rate, divide the annual rate by 12.
2. **Annuity Formula Application:** Use the annuity formula to calculate the monthly payment necessary to reach the desired amount within the specified timeframe, considering the interest.
3. **Rounding Requirement:** Ensure to round up the monthly payment to the nearest cent for practical budgeting.
**Solution:** Calculate and adjust her monthly payments based on the aforementioned details to fill the blank with the precise value.
Through this example, learn how to manage and plan for future financial goals using annuities and understand the impact of interest rates on regular savings plans.
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