Financial Management: Annuity, EMI, and Incremental Analysis

FINANCIAL MANAGEMENT
[Pick the date]
Student Name

Question 2
(a)
(i) Future value of annuity
Now,
It is apparent that Ruth has to achieve the target of $1,600,000 at the age of 63. However, he
would not be able to achieve it as apparent from future value of annuity (Arnold, 2015).
(ii) Present value of annuity would be used to find the monthly pension (Parrino and
Kidwell, 2014).
1

Now,
P = $9,351.52
Thus, at the end of each month Ruth will get a monthly pension of 9,351.52 after a month of
retirement.
(b)
(i) Compounding = Monthly
Nominal interest rate = 4.5% p.a.
(ii) Calculation of EMI (equal monthly instalment ) (Damodaran, 2015).
Now,
(iii) Sum of present value of annuities would be equal to the loan amount ($750,000)
(Damodaran, 2015).
2