Question

An investment today of $8,424 at 6% will yield payments of $2,000 per year for five years, or total payments of $10,000 over five years. The reason for this increase is that the interest is being earned on principal that is left invested each year. true false

Answer 1

Answer:

True

Explanation:

In this question, we have to find out the present value which is shown below:

= Annual payment × PVIFA for 5 years at 6 %

= $2,000 × 4.2124

= $8,424

Refer to the PVIFA table

Basically we multiply the annual payment with the PVIFA to allow the exact amount to arrive. The present value comes after taking the discount rate into account for the number of periods