Mr. Kepler has been working at a large manufacturing company. During his time there he has managed to accumulate R 2 million in an investment fund. He is 65 today. Suppose that he knows he will live until he is 80 and then die immediately. He wants to invest this lump sum with a pension company. Ignoring extra costs, how much money per month will he be able to receive as income from this pension company if the company promises to pay 16% p.a.?
R 2 325.13 per month
R 27 901.61 per month
R 146 991.03 per month
None of the above.
R 27 901.61 per month
To calculate the monthly income Mr. Kepler will receive, we can use the formula for calculating equal payments:
PMT = PV * r / (1 - (1 + r)^(-n))
Where:
PMT = monthly payment
PV = present value (R 2 million)
r = interest rate per period (16% per annum, so 1.33% per month)
n = total number of periods (15 years = 180 months)
PMT = 2,000,000 * 0.0133 / (1 - (1 + 0.0133)^(-180))
PMT = 27,901.61
Therefore, Mr. Kepler will be able to receive R 27,901.61 per month as income from the pension company.