Question

as part of your retirement plan you want to set up an annuity in which a regular payment of $80,121 is made at the end of each year. you need to determine how much money must be deposited earning 10% compounded annually in order to make the annuity payment for 20 years

Answer 1

c. $682,115.24

Step-by-step explanation

Answer 2

Answer: $681829.71 must be deposited

Explanation:

We would apply the formula for determining present annuity. It is expressed as

PV = R[1 - (1 + r)^- n]r

Where

PV represents the present value of the investment.

R represents the regular payments made(could be weekly, monthly)

r = represents interest rate/number of interval payments.

n represents the total number of payments made.

From the information given,

r = 10% = 10/100 = 0.1

n = 20

R = $80121

Therefore,

PV = 80121[1 - (1 + 0.1)^- 20]/0.1

PV = 80121[1 - (1.1)^- 20]/0.1

PV = 80121[1 - 0.149]/0.1

PV = 80121[0.851]/0.1

PV = 80121 × 8.51

PV = $681829.71