Conhugeco's CEO is ready to step down and wants to sock away enough money in his offshore Caribbean accounts to generate $150,000 per year for the next ten years. If he can secure a 4% interest rate from the bank, how much does he need to earmark today?

Question

Quizplus · Accepted Answer

To find the present value of an annuity, we use the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($150,000), r is the interest rate (4% or 0.04), and n is the number of years (10). Plugging in the values, PV = $150,000 × [(1 - (1 + 0.04)^-10) / 0.04], which calculates to approximately $1.2 million.

Conhugeco's CEO Is Ready to Step Down and Wants to Sock