A charity plans to invest annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment will be invested one year from today. Assuming the investment earns 5.5 percent annually, how much will the charity have available four years from now?

Question

A charity plans to invest annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment will be invested one year from today.  Assuming the investment earns 5.5 percent annually, how much will the charity have available four years from now?

Quizplus · Accepted Answer

We can solve this problem by using the formula for the future value of an annuity, which is:

FV = PMT x ((1 + r)n - 1) / r

where PMT is the annual payment, r is the annual interest rate, and n is the number of years.

Plugging in the values given in the problem, we get:

FV = 60,000 x ((1 + 0.055)4 - 1) / 0.055 + 
     70,000 x ((1 + 0.055)3 - 1) / 0.055 + 
     75,000 x ((1 + 0.055)2 - 1) / 0.055 + 
     50,000 x ((1 + 0.055)1 - 1) / 0.055

FV = 60,000 x 4.310108 + 70,000 x 3.310809 + 75,000 x 2.619137 + 50,000 x 1.055

FV = 258,606.48 + 231,758.63 + 196,439.03 + 52,750.00

FV = $739,554.14

Therefore, the charity will have $739,554.14 available four years from now. The closest answer choice to this amount is C) $277,491.

A Charity Plans to Invest Annual Payments of $60,000, $70,000