Question
You are discussing a 20-year annuity with an investment planner. The interest rate is fixed and relatively high. The planner tells you what monthly yield
You are discussing a 20-year annuity with an investment planner. The interest rate is fixed and relatively high. The planner tells you what monthly yield you can expect for the nest egg you have. Explain how you can quickly check whether the figure the planner gave you is reasonable. Choose the best answer.
A. Divide the principal by the number of payments in the annuity. This gives a low but reasonable approximation of the monthly payment.
B. Multiply the principal times the monthly interest rate as a decimal. This gives a low but reasonable approximation of the monthly payment.
C. Multiply the number of payments in the annuity by the monthly interest rate as a percent. This gives a low but reasonable approximation of the monthly payment.
D. Divide the principal by the monthly interest rate as a decimal. This gives a low but reasonable approximation of the monthly payment.
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