Use the appropriate formula to find how much you should...

Use the appropriate formula to find how much you should deposit now at 6% interest, compounded annually, to yield an annuity payment of $850 at the BEGINNING of each year, for 11 years. $6,703.84 $7,106.07 $7,126.27 $10,235.34?

Transcript

00:01 In the given question, we need to find out the deposit amount that we should make today so that we will be receiving $850 at the beginning of each year for the next 11 years.

00:15 And we have been given that the deposit is going to earn a interest of 6 % compounded annually.

00:24 So this type of question is basically annuity due type.

00:31 Here this we are going to receive this 850 annually for the 11 years and this will be at the beginning of every year okay so at the beginning of every year we will be receiving 850 for 11 years so we need to find out how much amount we should deposit today so what we will be doing since this payment yearly payment is happening at the beginning of every year therefore it is a type of annuity due and the deposit amount should be equal to the present value of anvety so we will be using the present value of annuity formula and the annuity will be of which type this will be of annuity due type because the payment that we are going to receive is at beginning of every year so this equals to p times 1 minus 1 plus the rate of interest to the power minus n divided by i that is rate of interest times one plus i now if we see the formula here p refers to the annuity payment okay and i refers to the interest rate per period so we have interest rate of six percent and which is compounded annually we will be writing 6 % or we can say 0 .06.

02:01 Similarly, annuity payment is of $850 and this payment is going for 11 years.

02:07 So this end refers to the total number of period.

02:11 So we have total period of 11 years.

02:14 That means we have 11 as total period.

02:16 Now putting the values in the formula, we can get our present value of annuity...

Question

Use the appropriate formula to find how much you should deposit now at 6% interest, compounded annually, to yield an annuity payment of $850 at the BEGINNING of each year, for 11 years. $6,703.84 $7,106.07 $7,126.27 $10,235.34?

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