Question

Rachael wants to receive monthly payments of $2,775 for 20 years. How much does she have to invest now in an annuity that offers an annual interest rate of 6%? Round your answer to the nearest $100.

Answer 1

$387,336.64 1

Explanation:

The computation of the amount invested now is shown below:

Here we use the present value formula i.e. to be shown in the spreadsheet

Given that,

Future value = $0

Rate of interest = 6% ÷ 12 months = 0.5%

NPER = 20 years × 12 months = 240 months

PMT = $2,775

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the present value is $387,336.64 1