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10 May, 01:15

Lisa's opportunity cost rate is 10 percent compounded annually. How much must she deposit in an account today if she wants to receive $3,200 at the end of each of the next 12 years? Use the equation method to determine the amount to be deposited today.

a) $18,725

b) $14,868

c) $23,252

d) $17,226

e) $21,804

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  1. 10 May, 01:41
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    e) $21,804

    Explanation:

    Annuity payments at the end of each year is an Ordinary Annuity. Using a financial calculator, input the following;

    Total duration; N = 12

    Interest rate; I/Y = 10%

    Onetime future value; FV = 0

    recurring payment; PMT = 3,200

    then compute Present value; PV = 21,803.814

    Therefore, she would deposit $21,804 in her account today. This makes choice E correct.
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