Problema Solution
how much do you have to deposit today o that beginning in 11 years from now you can withdraw $10,000.00 a year for the next 5 years (periods 11 through 15)plus an additional amount of $20,000.00 in the last year (period 15)? Assume an interest rate of 6%
Answer provided by our tutors
P = the principle or the money you have to deposit today
t = 11 years
r = 0.06 or 6% annual interest rate
A = 5*10,000 + 20,000
A = $70,000 is the future value
We will assume that the compounding is done annually:
A = P(1 + r)^t
P(1 + 0.06)^11 = 70,000
........
click here to see the equation solved for P
........
P = $36,875.13
You have to deposit $36,875.13 today.