Items 69 through 72 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 69 to 72 is based on 10% interest compounded annually.

-What amount should an individual have in a bank account today before withdrawal if $7,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)
A) $7,000 + ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751)
B) $7,000 ÷ 0.683 × 4
C) ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751) + ($7,000 × 0.683)
D) $7,000 ÷ 0.909 × 4

Question

Items 69 through 72 apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 69 to 72 is based on 10% interest compounded annually.
 
-What amount should an individual have in a bank account today before withdrawal if $7,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)
A) $7,000 + ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751) 
B) $7,000 ÷ 0.683 × 4 
C) ($7,000 × 0.909) + ($7,000 × 0.826) + ($7,000 × 0.751) + ($7,000 × 0.683) 
D) $7,000 ÷ 0.909 × 4

Quizplus · Accepted Answer

This problem involves calculating the present value of an annuity, where $7,000 is withdrawn at the beginning of each period for four periods. Choice A correctly applies the present value factors for each of the four years, assuming a certain discount rate, to calculate the total amount needed in the bank account today to meet the withdrawal requirements.

Items 69 Through 72 Apply to the Appropriate Use of Present