Use the appropriate formula to find how much you should deposit now at 9% interest, compounded annually, to yield an annuity payment of $1,200 at the BEGINNING of each year, for 18 years.
A) $10,252.36
B) $7,870.92
C) $7,486.12
D) $11,452.36

Question

Quizplus · Accepted Answer

To find the present value of an annuity due (payments at the beginning of each period), we use the formula $PV = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right) \times (1+r)$, where PMT is the annual payment ($1,200), r is the annual interest rate (9% or 0.09), and n is the number of periods (18 years). Calculating this gives a value closer to the option D, $11,452.36, after adjusting the formula for an annuity due by multiplying by $(1+r)$ to account for the immediate first payment.

Use the Appropriate Formula to Find How Much You Should