Marc Lewis expects an investment of $25,000 to return $6,595 annually.His investment is earning 10% per year.How many annual payments will he receive? (PV of $1,FV of $1,PVA of $1,and FVA of $1)$\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$
A)Three payments
B)Five payments
C)Six payments
D)Four payments
E)More than six payments

Question

Quizplus · Accepted Answer

To find the number of annual payments Marc Lewis will receive, we use the Present Value of an Annuity (PVA) formula, which is PVA = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the annual interest rate, and n is the number of payments. Given that the investment is $25,000, the annual return is $6,595, and the interest rate is 10% (or 0.10), we rearrange the formula to solve for n. Using the PVA factor from the tables for a 10% interest rate, we find the factor that matches or closely approximates the ratio of $25,000 / $6,595. This calculation leads us to the factor that corresponds to five payments.

Marc Lewis Expects an Investment of $25,000 to Return $6,595 (Use appropriate factor(s)from the tables provided.)\bold{\text{(Use appropriate factor(s)from the tables provided.)}}(Use appropriate factor(s)from the tables provided.)

Marc Lewis Expects an Investment of $25,000 to Return $6,595 $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$