Question

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20 pts Question 5 You've lost a lawsuit that requires you to pay $1,500 per month for 120 months starting next month. How much would you have to invest today to exactly pay for the lawsuit ,if your investments earn 3.00% APR (compounded monthly)? Calculate your answer to the nearest dollar. Write only the number with no dollar sign or comma (e.g., 3711)

Answer 1

This question requires application of PV of annuity, according to which:

PV =

1- (1+ г)-т Р т Р— Рeriodic Раутent т 3 гate рer period п 3D питber of periods

r = 3%/12 = 0.25% (monthly), n = 120, P = $1500

$PV = 1500 * [\frac{1 - (1 + 0.0025)^{-120}}{0.0025}]$

PV = 1500 * 103.5618

PV = $155,343