What is the principal amount of an annuity that pays 6.5% and issues checks of $525 monthly?

To determine the principal amount of an annuity based on the monthly payments and the interest rate, you can use the formula for the present value of an annuity. This formula is commonly used in finance and real estate to calculate how much money is needed upfront to provide a series of regular payments over time.

The present value of an annuity formula is:

PV = PMT × [(1 - (1 + r)^-n) / r]

Where:

• PV is the present value (principal amount)
• PMT is the payment amount per period (in this case, $525)
• r is the interest rate per period (monthly interest rate)
• n is the total number of payments (total number of months)

In this scenario, the annual interest rate is 6.5%. To find the monthly interest rate, divide this rate by 12 months, which gives you an interest rate of approximately 0.54167% per month (6.5% ÷ 12). Convert this percentage to a decimal by dividing by 100, resulting in 0.0054167.

The next step would be determining the number of periods (n), which depends on how long you expect the annuity payments to continue.