Find the lump sum deposited today that will yield the same total amount as payments of...

Question

Question

Answer 1

Answer #1

Answer: $38,965.32

Calculations:

lump sum today (Present value)=Required amount at end of each year x Present value annuity factor (5 Years,5%)

Lump sum today = $9,000 x 4.32948

Lump sum today = $38,965.32

Verification:

Interest amortization table
Year	Cash Received	Interest income	Reduction in balance	Balance
0				$ 38,965.32
1	$9,000	$ 1,948.27	$7,051.73	$ 31,913.59
2	$9,000	$ 1,595.68	$7,404.32	$ 24,509.27
3	$9,000	$ 1,225.46	$7,774.54	$ 16,734.73
4	$9,000	$ 836.74	$8,163.26	$ 8,571.46
5	$9,000	$ 428.57	$8,571.43	$ 0.04*

*Difference due to fractions

Answer 2

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