Connor has $300,000 to invest in a 5-year annuity. Assuming the time value of money is 10%, what amount will Connor receive in cash each year? . (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the amount received each year, we need to use the formula for the present value of an annuity:

PV = C x (1 - (1 + r)^-n) / r

where PV is the present value, C is the cash amount received each year, r is the interest rate, and n is the number of years.

We are given PV as $300,000, r as 10%, and n as 5 years. Plugging these values into the formula and solving for C, we get:

C = PV x r / (1 - (1 + r)^-n)
  = 300,000 x 0.10 / (1 - (1 + 0.10)^-5)
  = 79,139

Therefore, Connor will receive approximately $79,139 in cash each year for five years. The best choice is A.

Connor Has $300,000 to Invest in a 5-Year Annuity