You have your choice of two investment accounts. Investment A is a 10-year annui

Question

You have your choice of two investment accounts. Investment A is a 10-year annuity that features end-of- month $2,080 payments and has an interest rate of 6 percent compounded monthly. Investment B is an annually compounded lump-sum investment with an interest rate of 7 percent, also good for 10 years. Required: How much money would you need to invest in B today for it to be worth as much as Investment A 10 years from now? (Enter rounded answer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Present value $

Explanation / Answer

Equate the future values of both investments.

2080*FVAIF(0.5%, 12*10periods) = B*(1.07^10)

2080*163.88 = B*1.967

B = 2080*163.88/1.967= $173,294.56

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