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a sum of sufficient magnitude is to be invested now so that...

a sum of sufficient magnitude is to be invested now so that starting 10 years from mow an amount of $2000 per year can be paid in each of 8
succeeding years. The unexpended money remains invested at 8 percent compounded annually. How much must be allocated now? 

Business Economics ENGINEERIN 789 섈 쉋

Answer & Explanation Solved by verified expert 숨

This is an annuity which we will assume it's paid at the start of the year. We are, therefore, supposed to compute the Present value(PV) of the annuity
of $2000 per year for 8 years. The formula used is shown below.

Step-by-step explanation

PV=(1+r) * A * [{1-1/(1+r) n}/r]

Where r is the compounding rate, n the number of years, and A is the amount per year,
Therefore, PV=(1+0.08) * 2000 * [{1-1/(1+0.08) 8}/0.08]
=(1.08) * 2000 * [{1-1/(1.8509}/0.08]
=(1.08) * 2000 * [{1-0.5402/0.08]
=1.08 * 2000 *5.7475
=$12,414

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