How much would you have to invest today in the bank at an interest rate of 10% to have an annuity of $5600 per year for 7 years,

Question

Tju [1.3M]

3 years ago

7

How much would you have to invest today in the bank at an interest rate of 10% to have an annuity of $5600 per year for 7 years,

with nothing left in the bank at the end of the 7 years? (Round to nearest dollar)

Business

1 answer:

Shtirlitz [24] · Answer 1 · 2022-03-30T02:41:14+03:00

Answer:

PV = $27,263.15

It will be needed to deposit the lump sum of $27,263.15

Explanation:

The question is asking for how much will you need to deposit in a lump sum today to withdraw for seven years the sum of $5,600 with an interest rate of 10%

In other words it is asking us for the preset value of an annuity of $5,600 with interest of 10%

Using the present value of an annuity formula of $1 we can solve for the present value of that annuity, which is the amount needed to generate this annuity

$C * \frac{1-(1+r)^{-time} }{rate}= PV\\$

We post our knows value and solve it:

$5,600 * \frac{1-(1+0.10)^{-7} }{0.10}= PV\\$

PV = $27,263.15