How much money must you pay into an account at the beginning of each of 20 years in order to have $10,000 at the end of the 20th year? Assume that the account pays 12% per annum, and round to the nearest $1.
A) $1,195
B) $111
C) $124
D) $139

Question

Quizplus · Accepted Answer

This is a present value annuity problem. Using the formula P = (A*((1+r)^n-1))/r, where P is the present value, A is the annuity payment, r is the interest rate per payment period, and n is the number of payment periods, we can solve for the annuity payment. Plugging in the given values, we get P = 10,000, r = 0.12/12 (since the interest rate is given as an annual rate and the payments are made monthly), and n = 20*12 = 240. Solving for A gives us A = $123.93. Rounded to the nearest dollar, the answer is $124. Therefore, the best choice is C.

How Much Money Must You Pay into an Account at the Beginning