Find the present value of an annuity if the withdrawal is to be $500 per month for 36 months at 4% compounded monthly
Remember that
The formula for the present value of an ordinary annuity is equal to:
[tex]PV=P\lbrack\frac{(1-(1+r)^{(-n)}}{r}\rbrack[/tex]where
PV is the present value
P is the periodic payment
r is the interest rate in decimal form
n is the number of times the interest is compounded per year
t is the number of years
In this problem we have
P=$500
t=36 months=3 years
r=4%=0.04
n=12
substitute given values
[tex]PV=500\lbrack\frac{(1-(1+0.04)^{(-12)}}{0.04}\rbrack[/tex]
