How much would you have to deposit today in a bank account paying 8% annual interest to allow you to withdraw $200 each year for the next 2 years,beginning one year from today?

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity:

PV = Payment * [(1 - (1 + r)^-n) / r]

PV = $200 * [(1 - (1 + 0.08)^-2) / 0.08]
PV = $356.66

Therefore, you would have to deposit $356.66 today in order to withdraw $200 each year for the next 2 years, beginning one year from today. The closest answer choice is C.

How Much Would You Have to Deposit Today in a Bank