Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually.

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity to solve the problem:

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

where PV is the present value (or the amount to be deposited today), PMT is the yearly payment ($18,000), r is the interest rate (9% or 0.09), and n is the number of payments (20).

Plugging in the values, we get:

PV = $18,000 * ((1 - (1 + 0.09)^(-20)) / 0.09)
PV = $164,313.82

Therefore, Abby Mia must deposit $164,313.82 today in order to receive yearly payments of $18,000 for 20 years at a rate of 9% compounded annually.

Abby Mia Wants to Know How Much Must Be Deposited