Question

You would like a yearly annuity of $6,000 for 10 years at a 4% annual interest rate. How much do you need to invest initially to achieve this goal

Answer 1

Initial investment= $48,665.37

Step-by-step explanation:

Giving the following information:

You would like a yearly annuity of $6,000 for 10 years at a 4% annual interest rate.

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {6,000*[(1.04^10) - 1]} / 0.04

FV= $72,036.64

Now, the initial investment:

PV= FV/(1+i)^n

PV= 72,036.64 / (1.04^10)

PV= $48,665.37