Marshall has received an inheritance and wants to invest a sum of money today that will yield $5,000 at the end of each of the next 10 years.Assuming he can earn an interest rate of 5% compounded annually,how much of his inheritance must he invest today? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

A) $50,000.00
B) $47,500.00
C) $45,125.00
D) $38,608.50
E) $100,000.00

Question

Marshall has received an inheritance and wants to invest a sum of money today that will yield $5,000 at the end of each of the next 10 years.Assuming he can earn an interest rate of 5% compounded annually,how much of his inheritance must he invest today? (PV of $1,FV of $1,PVA of $1,and FVA of $1)

\bold{\text{(Use appropriate factor(s) from the tables provided.) }}

A) $50,000.00
B) $47,500.00
C) $45,125.00
D) $38,608.50
E) $100,000.00

Daphne Stewart · Accepted Answer

Final Answer : D, Explanation :  We need to find the present value of an ordinary annuity of $5,000 for 10 years at 5% interest rate. Using the PVA of $1 table, we find the factor for n=10 and i=5% to be 7.72173. Therefore, the present value of the annuity is $5,000 x 7.72173 = $38,608.50. Thus, Marshall should invest $38,608.50 today to receive $5,000 at the end of each of the next 10 years. The correct answer is D.

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