The above table shows a 5 year payment plan. Each payment is made at the end of the year, so after one year, a payment of $ made, after two years another payment of $1,500 is made and so on. The interest rate is 3 percent.
-Refer to the table above. What sum of money should be deposited today in an account that earns 3 percent interest to make each of the five payments above and, when the last payment is made, there will be no money left in the account?

Question

Quizplus · Accepted Answer

To find the present value of the 5 payments, we need to use the formula:
PV = PMT/(1+r)^n + PMT/(1+r)^(n-1) + ... + PMT/(1+r)^1
where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of payments.

Plugging in the values from the table, we get:
PV = 1000/(1+0.03)^5 + 1500/(1+0.03)^4 + 2000/(1+0.03)^3 + 2500/(1+0.03)^2 + 3000/(1+0.03)^1
PV = $9,886.70

Therefore, choice C is the best answer.

The Above Table Shows a 5 Year Payment Plan