How much money must you pay into an account at the beginning of each of 11 years in order to have $5,000 at the end of the 11th year? Assume that the account pays 8% per year, and round to the nearest $1.
A) $700
B) $257
C) $300
D) $278

Question

Quizplus · Accepted Answer

This is a present value of an annuity problem. We need to find out how much needs to be invested each year to yield $5,000 at the end of the 11th year, given an interest rate of 8%. Using the formula for present value of an annuity, we get:

PV = PMT x (1 - (1 + r)^-n) / r

where PV is the present value (which we want to find), PMT is the payment to be made each year, r is the interest rate (8% or 0.08), and n is the number of years (11).

Plugging in the values, we get:

$5,000 = PMT x (1 - (1 + 0.08)^-11) / 0.08

Solving for PMT, we get:

PMT = $278.16

Rounding to the nearest dollar, the answer is D: $278.

How Much Money Must You Pay into an Account at the Beginning