Sienna invests $152 431 into an annuity from which she will receive a regular monthly payment of $900 for 25 years. The interest rate for this annuity is 5.1% per annum, compounding monthly.
- Let `V` be the balance of the annuity after `n` monthly payments. A recurrence relation written in terms of `V_0 , V_{n + 1}` and `V_n` can model the value of this annuity from month to month.
- Showing recursive calculations, determine the value of the annuity after two months.
- Round your answer to the nearest cent. (2 marks)
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- After two years, the interest rate for this annuity will fail to 4.6%.
- To ensure that she will still receive the same number of $900 monthly payments, Sienna will add an extra one-pff amount into the annuity at this time.
- Determine the value of this extra amount that Sienna will add.
- Round your answer to the nearest cent. (1 mark)
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