How much would you deposit today in a savings account that earns 10%, in order that you can make equal annual withdrawals of $1,200 each at the end of each of the next 15 years?
A) $5,013
B) $9,127
C) $19,800
D) $18,000
E) $38,127

Question

Quizplus · Accepted Answer

To find the present value of an annuity, we use the formula for the present value of an ordinary annuity. The formula is PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($1,200), r is the interest rate (10% or 0.10), and n is the number of periods (15 years). Plugging in the values, we get PV = $1,200 × [(1 - (1 + 0.10)^-15) / 0.10] = $9,127.

How Much Would You Deposit Today in a Savings Account