Question

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

Answer 1

Answer:

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.