How much would you have to invest today in the bank at an interest rate of 5% to have an annuity of $1,400 per year for 5 years, with nothing left in the bank at the end of the 5 years? Select the amount below that is closest to your answer.
A)$6,667
B)$6,061
C)$7,000
D)$1,098

Question

Quizplus · Accepted Answer

We need to use the present value of an annuity formula, which is:

PV = A * (1 - (1 + r)^(-n)) / r

where PV is the present value, A is the amount of the annuity, r is the interest rate, and n is the number of periods. Plugging in the given values, we get:

PV = 1,400 * (1 - (1 + 0.05)^(-5)) / 0.05
PV = $6,060.98

Therefore, the closest answer choice is B) $6,061.

How Much Would You Have to Invest Today in the Bank