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Assume that you are 30 years old today and that you are planning on retirement at age 65.Your current salary is $45,000 and you expect your salary to increase at a rate of 5% per year as long as you work.To save for your retirement,you plan on making annual contributions to a retirement account.Your first contribution will be made on your 31st birthday and will be 8% of this year's salary.Likewise,you expect to deposit 8% of your salary each year until you reach age 65.Assume that the rate of interest is 7%.
-If the appropriate interest rate is 8%,then present value of $500 paid at the beginning of each of the next 40 years is closest to:
A)$23.
B)$5962.
C)$6439.
D)$20,000.

Question

Quizplus · Accepted Answer

To find the present value of $500 paid at the beginning of each of the next 40 years, we can use the formula for the present value of an annuity:

PV = C * ((1 - (1 / (1+r)^n)) / r)

where PV is the present value, C is the amount of each payment, r is the interest rate per period, and n is the total number of periods.

In this case, C = $500, r = 8%, and n = 40.

Using the formula, we get:

PV = $500 * ((1 - (1 / (1+0.08)^40)) / 0.08)

PV = $500 * ((1 - (1 / 14.9745)) / 0.08)

PV = $500 * (13.9745 / 0.08)

PV = $8,693.12

So the present value of $500 paid at the beginning of each of the next 40 years is closest to $6,439 (answer choice C).

Use the Information for the Question(s)below