Zweli wants to buy an ordinary annuity that pays R6 000 a year for the next 20 years. The expect annual interest rates will be 6% over that time period. what is the maximum of he will pay for annuity?

Solution

Zweli wants to buy an ordinary annuity that pays R6 000 a year for the next 20 years. The expect annual interest rates will be 6% over that time period. what is the maximum he will pay for annuity?

Solution

Principal : 2727.27

Solution steps

Translate the problem into an equation:

6000 = P (1 + 0.06 \cdot 20)

Solve for

P, 6000 = P (1 + 0.06 \cdot 20) : P = 2727.27

Principal : 2727.27

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