You would like to deposit a sum of money today that would enable you to withdraw $2,000 a year for ten years. If the interest paid on the amount deposited is 10% compounded annually and if the first withdrawal is made one year from today, the formula you would use to determine the amount of the initial deposit is the
A) present value of a deferred annuity.
B) present value of an annuity due.
C) present value of an ordinary annuity.
D) future value of an ordinary annuity.

Question

Quizplus · Accepted Answer

The correct formula to determine the initial deposit needed to withdraw $2,000 a year for ten years with the first withdrawal made one year from today, at an interest rate of 10% compounded annually, is the present value of an ordinary annuity. This is because payments are made at the end of each period, which is characteristic of an ordinary annuity.

You Would Like to Deposit a Sum of Money Today