Question

What sum would have to be invested today at 9% compounded annually to provide an ordinary annuity of P8,000 per year for 5 years?

Answer 1

given the following?

A = 8000

r = 9% = 0.09

t = 5

P = ?

using the formular

A = P(1 + r)^t

8000 = P(1 + 0.09)^5

8000 = P(1.09)^5

8000 = 1.5386P

divide both sides by 1.5386

1.5386P/1.5386 = 8000/1.5386

P = 5,200