The total amount of money which the Stewart family would have to pay into the annuity each quarter is $242.12.
How to calculate the payment?
Mathematically, annuity can be calculated by using this formula:
[tex]A = P[\frac{(1+\frac{r}{n} )^{nt} - 1)}{\frac{r}{n} }][/tex]
Given the following data:
- Number of times compounded (quarterly), n = 4.
- Present value, A = $13,000.
- Interest rate, r = 3.6% = 0.036.
Substituting the given parameters into the formula, we have;
[tex]13000 = P[\frac{(1+\frac{0.036}{4} )^{4 \times 11} - 1)}{\frac{0.036}{4} }]\\\\13000 = P[\frac{(1+0.009 )^{44} - 1)}{0.009 }]\\\\13000 = P[\frac{(1.009 )^{44} - 1)}{0.009 }]\\\\13000 = P[\frac{1.48323960867 - 1}{0.009 }]\\\\13000 = P[\frac{0.48323960867 }{0.009 }]\\\\13000 = 53.6932898522P[/tex]
P = 13000/53.6932898522
P = $242.12.
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Complete Question:
The Stewart family wants to save money to travel the world. They plan to invest in an ordinary annuity that earns 3.6% interest, compounded quarterly. Payments will be made at the end of each quarter. How much money do they need to pay into the annuity each quarter for the annuity to have a total value of $13,000 after 11 years?
