Question

For tax reasons, your client wishes to purchase an annuity that pays $80,000 each year for 6 years, with the first payment in one year. At an interest rate of 8% and focusing on time value of money without consideration of any fees, how much would the client need to invest now

Answer 1

Answer:

$369,830.37

Explanation:

Present value can be calculated using a financial calculator

Cash flow from year  1 to 6 = 80,000

i = 8%

pv = $369,830.37

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute