Your bank pays 9% interest, compounded annually. Use the appropriate formula to find how much you should deposit now to yield an annuity payment of $800 at the END of each year, for 10 years.
A) $5,134.13
B) $6,099.86
C) $5,596.20
D) $6,454.28

Question

Quizplus · Accepted Answer

The correct answer is A. $5,134.13.The formula for the present value of an annuity is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the annuity paymentr is the annual interest raten is the number of yearsIn this case, we have:PMT = $800r = 9% = 0.09n = 10 yearsPlugging these values into the formula, we get:PV = $800 * [1 - (1 + 0.09)^-10] / 0.09PV = $800 * [1 - 0.385543] / 0.09PV = $800 * 0.614457 / 0.09PV = $5,134.13Therefore, you should deposit $5,134.13 now to yield an annuity payment of $800 at the end of each year for 10 years.

Your Bank Pays 9% Interest, Compounded Annually