Question

Charlie Stone wants to retire in 36 years, and he wants to have an annuity of $1200 a year for 25 years after retirement. Charlie wants to receive the first annuity payment at the end of the 36th year. Using an interest rate of 12%, how much must Charlie invest today in order to have his retirement annuity?

Answer 1

Ans $ 159.16

VALUE OF ANNUITY AFTER 36 YEARS
Annuity PV Factor (End of Period) =	P [ 1 - ( 1 + r )^-n ]
	r
	1200* ( 1 - ((1 / (1 + 12%)^25)))
	12%
	1129.412032
	0.12
	9411.77

FV =	Future Value
PV =	Present Value
r =	rate of interest
n=	no of period
PRESENT VALUE OF ANNUITY
PV =	FV/ (1 + r )^n
PV =	9411.77 / ((1 + 12%)^36)
PV =	159.16