Question

nancy billows promised to pay her son$600 quarterly for four years. If nancy can invest her money at 6% in an ordinary annuity, she must invest how much today?

Answer 1

To compute the present value, we will follow this formula
P= A[(1+r)^n-1]/[r(1+r)^n
where
P= principal amount
A= annuity or amortization; $600
r = interest rate; 6%
n= number of payments= 4x4=16

Substituting the given data, we will get
P = $6063.54
Nancy billows must invest $6063.54 today for her son.