Question

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payments of $18,000 for 20 years at a current rate of 9% compounded annually. (Use the tables found in the textbook.)

Answer 1

We are not given tables, so will just use the amortization formula.

`P=(A*((1+i)^n-1))/(i*(1+i)^n)`
where
P=amount to be deposited today, to be found
A=amount withdrawn each year=18000
i=Annual interest=9%
n=number of years = 20

Substituting values,

`P=(A*((1+i)^n-1))/(i*(1+i)^n)`

`=(18000*((1+0.09)^(20)-1))/(0.09*(1+0.09)^(20))`
=164313.82 to the nearest cent