Richard retired recently and is receiving $400 per month from an investment at a rate of 7% for 20 years.Which of the following functions can he use to calculate the current value of the investment?
A) PMT
B) NPER
C) PV
D) RATE

Question

Quizplus · Accepted Answer

PV stands for present value, which is the current value of an investment. In this scenario, Richard is receiving $400 per month from an investment that has been accruing for 20 years at a rate of 7%. To calculate the current value of the investment, we need to use the present value formula, which is PV = PMT x ((1 - (1 + r/n)^(-nt)) / (r/n)), where PV is the present value, PMT is the monthly payment, r is the rate of interest (in decimal form), n is the number of times the interest is compounded per year, and t is the total number of periods (in months). We know that PMT is $400, r is 7% or 0.07, n is 12 (since there are 12 months in a year), and t is 20 years x 12 months per year = 240 months. Using the formula and solving for PV, we get PV = $59,073. Therefore, the best choice is C.

Richard Retired Recently and Is Receiving $400 Per Month from an Investment