56.2k views
1 vote
The amount a person would have to be able to take out $600 a year for 7 years from an account earning 6 percent. Round time value factor to 3 decimal places and final answer to 2 decimal places.

1 Answer

4 votes
To calculate the amount that a person would have to take out $600 a year for 7 years from an account earning 6 percent, we can use the present value of an annuity formula, which is:

PV = PMT x [(1 - (1 / (1 + r)^n)) / r]

where PV is the present value of the annuity, PMT is the amount of each payment, r is the interest rate per period, and n is the number of periods.

In this case, PMT is $600, r is 6% or 0.06, and n is 7. We can calculate the time value factor using the formula:

Time value factor = (1 - (1 / (1 + r)^n)) / r

Time value factor = (1 - (1 / (1 + 0.06)^7)) / 0.06

Time value factor = 4.868

Now we can calculate the present value of the annuity using the formula:

PV = PMT x time value factor

PV = $600 x 4.868

PV = $2,920.80

Therefore, the amount a person would have to have in an account earning 6 percent in order to take out $600 a year for 7 years would be $2,920.80.
User Djs
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.