How much must be deposited on January 1, 2007 in a savings account paying 6% annually in order to make annual withdrawals of $20,000 at the end of the years 2007 and 2008? The present value of one at 6% for one period is .9434.
A)$36,668
B)$37,740
C)$40,000
D)$17,800

Question

Quizplus · Accepted Answer

To find the amount to be deposited, calculate the present value of the withdrawals. The present value of $20,000 at the end of 2007 is $20,000 * 0.9434 = $18,868. The present value of $20,000 at the end of 2008 is $20,000 * 0.9434^2 = $17,800. Adding these gives $36,668.

How Much Must Be Deposited on January 1, 2007 in a Savings