Assume you can invest money at a 14% rate of return. How much money must be invested now in order to be able to withdraw $5,000 from this investment at the end of each year for 8 years, the first withdrawal occurring one year from now?
A)$24,840
B)$23,195
C)$21,440
D)$1,755

Question

Quizplus · Accepted Answer

To find the present value of an annuity, we use the formula: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($5,000), r is the rate of return (0.14), and n is the number of periods (8). Plugging in the values, we get PV = $5,000 × [(1 - (1 + 0.14)^-8) / 0.14] = $23,195.

Assume You Can Invest Money at a 14% Rate of Return