Question

Ms. Walters want to have $215,000 annual income every year for the next 22 years. If she can earn an average rate of return of 4 percent, how much does Ms. Walters need to put down today to have $215,000 annual income every year for the next 22 years? none of the answers is correct

a) $4,422,679
b) $2,938,334
c) $6,876,734
d) $3,106,990

Answer 1

To find out how much Ms. Walters needs to invest today to ensure an annual income of $215,000 for 22 years at a 4 percent return, we use the present value of an annuity formula. The correct investment amount is calculated by using this formula, which none of the provided answer choices match.

Step-by-step explanation:

To determine how much Ms. Walters needs to put down today to receive $215,000 annually for the next 22 years at an average rate of return of 4 percent, we need to calculate the present value of an annuity. The formula for the present value (PV) of an annuity is PV = PMT * [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the annual interest rate, and n is the number of payments.In Ms. Walters's case, the annual payment (PMT) is $215,000, the annual interest rate (r) is 0.04, and the number of payments (n) is 22. Plugging these values into the formula gives us:PV = $215,000 * [(1 - (1 + 0.04)^-22) / 0.04]

Performing the calculations will give us the amount Ms. Walters needs to invest today. After calculating, you will notice that none of the answers provided in the multiple-choice options matches the correct amount calculated using the present value of an annuity formula.