How much would you have to deposit today in a bank account paying 8% annual interest to allow you to withdraw $200 each year for the next 2 years,beginning one year from today?

Question

Quizplus · Accepted Answer

This is a present value of an annuity due problem. We need to find the present value of the annuity due that pays $200 each year for two years beginning one year from today. We can use the formula:
PV = PMT * ((1 - (1 + r)^-n) / r) * (1 + r)
where PV is the present value, PMT is the payment amount ($200), r is the interest rate per period (8% per year), and n is the number of periods (2).

Plugging in the values, we get:
PV = $200 * ((1 - (1 + 0.08)^-2) / 0.08) * (1 + 0.08)
PV = $356.66

Therefore, the amount that needs to be deposited today is $356.66. The correct answer is (C).

How Much Would You Have to Deposit Today in a Bank