Ask Question
16 May, 18:31

How much must be invested today in order to generate a 5-year annuity of $1,000 per year, with the first payment 1 year from today, at an interest rate of 12%?

+3
Answers (1)
  1. 16 May, 18:54
    0
    The amount to be invested today is $3604.78

    Explanation:

    This is a case of an ordinary annuity, to calculate the present value, the below formula is made used of:

    PV=A * (1-1 / (1+r) ^N) / r

    A is the annuity payment of $1000 for 5 years

    r is the rate of return on the annuity of 12%

    N is the duration of the annuity payment, that is 5years

    PV=$1000 * (1-1 / (1+12%) ^5) / 12%

    PV=$3604.78

    In essence, in order to receive $1000 every year starting a year today for 5 years, the sum of $3604.78 must be deposited today at rate of return of 12% per year.

    The amount required would be been different if the first payment of $1000 is due today
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “How much must be invested today in order to generate a 5-year annuity of $1,000 per year, with the first payment 1 year from today, at an ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers