Question

Charlie Stone wants to retire in 28 years, and he wants to have an annuity of $1600 a year for 20 years after retirement. Charlie wants to receive the first annuity payment at the end of the 28th year. Using an interest rate of 16%, how much must Charlie invest today in order to have his retirement annuity?

Answer 1

Ans $ 148.68

FV =	Future Value
PV =	Present Value
r =	rate of interest
n=	no of period

VALUE OF ANNUITY AFTER 28 YEARS
Annuity PV Factor (End of Period) =	P [ 1 - ( 1 + r )^-n ]
	r
	1600* ( 1 - ((1 / (1 + 16%)^20)))
	16%
	1517.78327
	0.16
	9486.15

PV =	FV/ (1 + r )^n
PV =	9486.15 / ((1 + 16%)^28)
PV =	148.68