Question

Instructions: a. Match each question with the method listed below that would be used in providing a solution. b. Compute the answer to each of the following questions listed below and on the right.

Method

A. Present Value or Future Value of a Single Sum

B. Future Value of an Ordinary Annuity

C. Future Value of an Annuity Due

D. Present Value of an Ordinary Annuity

E. Present Value of an Annuity Due

F. Present Value of a Deferred Annuity

10. How much should Mark set aside now, assuming that he can earn 8% interest compounded annually, so he can withdraw $10,000 at the end of each year for the next 10 years?

Answer 1

Solution a:

How much should Mark set aside now, assuming that he can earn 8% interest compounded annually, so he can withdraw $10,000 at the end of each year for the next 10 years - Present Value of an Ordinary Annuity

Solution b:

Amount to be set aside now = $10,000 * Cumulative PV Factor at 8% for 10 periods

= $10,000 * 6.71008 = $67,101