Andrea's opportunity cost rate is 12 percent compounded annually. How much must she deposit in an account today if she wants to receive $2,100 at the beginning of each of the next seven years? Use the equation method to determine the amount.

Question

Quizplus · Accepted Answer

The correct answer is A.The present value of an annuity is calculated using the formula:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the payment amountr is the interest raten is the number of periodsIn this case, PMT = $2,100, r = 12%, and n = 7. Plugging these values into the formula, we get:PV = $2,100 * [1 - (1 + 0.12)^-7] / 0.12= $2,100 * [1 - 0.5674] / 0.12= $2,100 * 0.4326 / 0.12= $10,734.00Therefore, Andrea must deposit $10,734.00 in an account today to receive $2,100 at the beginning of each of the next seven years.

Andrea's Opportunity Cost Rate Is 12 Percent Compounded Annually