PMT = 100
N = 5yrs times 12 mos = 60
I = .05/12 = .004167
FV = 100(1.004167)60 -1 ÷ .004167
= 6,800.68.
2. Lump sum converted to an annuity payout.
Consider the situation where you have a lump sum of money that is to be payed out as an series of equal payments over time. Although the lump sum decreases in value, it still earns income on the unapportioned balance. This type of annuity is favored as a method of creating a monthly retirement income.
Example: John has accumulated 400,000 and would like to know how much that would pay him each month for the next 30 years. Interest rates are 5%.
