A trust fund will start to pay you $15 200 per year at the beginning of each year once you turn 18. The prevailing interest rate is 8.79% compounded annually. For how long can you receive payments if you are celebrating your 14th birthday today and the current value of your trust fund is $111 345?

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of the annuity is $111,345, the annual payment is $15,200, and the interest rate is 8.79% compounded annually. Using the formula for the present value of an annuity, we can solve for the number of years:PV = PMT * [1 - (1 + r)^-n] / r$111,345 = $15,200 * [1 - (1 + 0.0879)^-n] / 0.0879n = 20.97 years

A Trust Fund Will Start to Pay You $15 200