Question

Suppose your client wishes to purchase an annuity that pays $100,000 each year for 6 years, with the first payment 7 years from now. at an interest rate of 7%, how much would the client need to invest now?ne year. at an interest rate of 7% and focusing on time value of money without consideration of any fees, how much would the client need to invest now

Answer 1

To calculate the amount needed to invest for an annuity that pays $100,000 each year for 6 years with the first payment 7 years from now at an interest rate of 7%, use the present value formula. The client would need to invest approximately $477,144.28 now.

Step-by-step explanation:

To calculate the amount your client would need to invest now for an annuity that pays $100,000 each year for 6 years with the first payment 7 years from now at an interest rate of 7%, we can use the formula for present value of an annuity. The formula is:

PV = PMT * ((1 - (1 + r)^(-n)) / r)

Where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of periods. Plugging in the values from the question, we get:

PV = $100,000 * ((1 - (1 + 0.07)^(-6)) / 0.07) = $477,144.28

So, the client would need to invest approximately $477,144.28 now in order to receive the annuity payments.