Question

How much must you deposit in an account now to allow you to withdraw $12,000 at the end every six month period for the next four years? Your bank account pays 8% annual int a) $77,958 b) $69,960 18. erest. d) $52,329 e) $80,793 c) $83,102

Answer 1

Number of periods = 4 * 2 = 8

Rate = 8% / 1 = 4%

Present value = Annuity * [1 - 1 / (1 + r)ⁿ] / r

Present value = 12,000 * [1 - 1 / (1 + 0.04)⁸] / 0.04

Present value = 12,000 * [1 - 0.73069] / 0.04

Present value = 12,000 * 6.732745

Present value = $80,793

You must deposit $80,793.

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PMT 12000

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