You have your choice of two investment accounts. Investment A is a 14-year annui

Question

You have your choice of two investment accounts. Investment A is a 14-year annuity that features end-of-month $1,350 payments and has an interest rate of 7.2 percent compounded monthly. Investment B is a 6.7 percent continuously compounded lump sum investment, also good for 14 years. How much money would you need to invest in B today for it to be worth as much as Investment A 14 years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Amount needed $

Explanation / Answer

Present Value of Investment A :

Monthly cash Flow = $ 1350

Interest Rate = 7.2% p.a. monthly compounding i,e, 7.2/12 = 0.6% per month

Year to maturity = 14 years = 14*12 = 162 months

PV of cash inflow = Monthly cash flow * PVIFA ( 0.6% , 168Months)

= 1350 * 105. 6585

= $ 142638.97

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.