You want to receive payments of $20,000 each year (end-of-year payments) for 15 years. If you can earn 8% on your funds, how much would you have to invest today in order to reach your goal?

Question

Quizplus · Accepted Answer

To find the present value of an annuity, use the formula: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($20,000), r is the interest rate (8% or 0.08), and n is the number of years (15). Plugging in the values, PV = $20,000 × [(1 - (1 + 0.08)^-15) / 0.08] = $171,190.

You Want to Receive Payments of $20,000 Each Year (End-Of-Year