Siri plans to retire now and would like to receive $10 000.00 per month for twenty years starting at the end of the first month after her retirement. Calculate the amount he must invest now if interest is 4.9% compounded monthly.

Question

Quizplus · Accepted Answer

The correct answer is A because the present value of an annuity is calculated as follows:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present valuePMT is the payment amountr is the interest rate per periodn is the number of periodsIn this case, we have:PMT = $10,000r = 4.9% / 12 = 0.4083%n = 20 * 12 = 240Plugging these values into the formula, we get:PV = $10,000 * [1 - (1 + 0.004083)^-240] / 0.004083= $10,000 * [1 - 0.0563] / 0.004083= $10,000 * 23.773= $237,730Therefore, Siri must invest $237,730 now in order to receive $10,000 per month for twenty years starting at the end of the first month after her retirement.

Siri Plans to Retire Now and Would Like to Receive