What amount would you have to invest now at 7% compounded annually in order to make withdrawals of $20,000 once per year for 25 years? The first withdrawal is to be made one year from now.
A) $233,072
B) $1,264,981
C) $544,343
D) $197,226
E) $427,561

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of an annuity is calculated using the formula PV = PMT * [1 - (1 + r)^-n] / r, where PV is the present value, PMT is the annual payment, r is the annual interest rate, and n is the number of years. In this case, PMT = $20,000, r = 7%, and n = 25. Plugging these values into the formula, we get PV = $20,000 * [1 - (1 + 0.07)^-25] / 0.07 = $233,072.

What Amount Would You Have to Invest Now at 7