You have your choice of two investment accounts. Investment A is a 6-year annuit

Question

You have your choice of two investment accounts. Investment A is a 6-year annuity that features end-of-month $3,000 payments and has an interest rate of 8 percent compounded monthly. Investment B is an annually compounded lump-sum investment with an interest rate of 10 percent, also good for 6 years.

How much money would you need to invest in B today for it to be worth as much as Investment A 6 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).)

How much money would you need to invest in B today for it to be worth as much as Investment A 6 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).)

Explanation / Answer

Value of investment A in 6 years = 3000*((1+8%/12)^(6*12)-1)/(8%/12) = 276,075.9753

Value of this as of today (as invested in investment B) = 276,075.9753/(1+10%)^6 = $ 155,837.69

Hope this helped ! Let me know in case of any queries.

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