Question

ecides to invest R140 000 into an account earning 13,5% interest per year, compounded quarterly. This new account allows him to raw an amount of money every quarter for 10 years after which time the account will be exhausted. The amount of money that Paul can raw every quarter is a. R1 704,28. b. R3 500,00. O c. R6 429,28. Od. R8 594,82. O Novt nana N Q D 27°C ENG​

Answer 1

Answer:

  c. R6429,28

Step-by-step explanation:

You want the amount that an ordinary annuity can provide quarterly for 10 years if it is funded by R140000 and earns 13.5% per year.

Payment

The quarterly payment amount can be found using the amortization formula ...

  $A=\dfrac{P\left(\dfrac{r}{4}\right)}{1-\left(1+\dfrac{r}{4}\right)^{-4t}}$

where P is the principal invested at annual rate r for t years.

Application

We have P = 140000, r = 0.135, and t = 10, so the payment amount is ...

  $A=\dfrac{140000\left(\dfrac{0.135}{4}\right)}{1-\left(1+\dfrac{0.135}{4}\right)^{-4\cdot10}}=\dfrac{140000\cdot0.03375}{1-1.03375^{-40}}\approx6429.28$

Paul can draw R6429,28 every quarter, choice C.