Marshall has received an inheritance and wants to invest a sum of money today that will yield $5,000 at the end of each of the next 10 years.Assuming he can earn an interest rate of 5% compounded annually,how much of his inheritance must he invest today? (PV of $1,FV of $1,PVA of $1,and FVA of $1)$\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$
A)$50,000.00
B)$47,500.00
C)$45,125.00
D)$38,608.50
E)$100,000.00

Question

Quizplus · Accepted Answer

We need to find the present value of an ordinary annuity of $5,000 for 10 years at 5% interest rate. Using the PVA of $1 table, we find the factor for n=10 and i=5% to be 7.72173. Therefore, the present value of the annuity is $5,000 x 7.72173 = $38,608.50. Thus, Marshall should invest $38,608.50 today to receive $5,000 at the end of each of the next 10 years. The correct answer is D.

Marshall Has Received an Inheritance and Wants to Invest a Sum