Assume the rate of interest is 8%. How much would you need to set aside to...
Assume the rate of interest is 8%. How much would you need to set aside to provide each of the following?
d. $1 billion a year spread evenly over 20 years. (Do not round intermediate calculations. Enter your answer in billions rounded to 3 decimal places.)
Homework Answers
The amount to be set aside is found using the present value of annuity equation
![A[ (1+r)* – 1] Present value of annuity= r(1 +r)](http://img.homeworklib.com/questions/97417240-75cb-11ea-ab12-51c9edec57f9.png?x-oss-process=image/resize,w_560)
![$1,000,000,000[ (1 + 0.08) 20 – 1] Present value of annuity = 0.08 x (1+ 0.08)20](http://img.homeworklib.com/questions/979d1af0-75cb-11ea-8bd7-d1063f3605d3.png?x-oss-process=image/resize,w_560)
The amount to be set aside = $ 9,818,147,407
The amount to be set aside = $ 9.818 billion
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