Answer:
PV = $27,263.15
It will be needed to deposit the lump sum of $27,263.15
Explanation:
The question is asking for how much will you need to deposit in a lump sum today to withdraw for seven years the sum of $5,600 with an interest rate of 10%
In other words it is asking us for the preset value of an annuity of $5,600 with interest of 10%
Using the present value of an annuity formula of $1 we can solve for the present value of that annuity, which is the amount needed to generate this annuity
[tex]C * \frac{1-(1+r)^{-time} }{rate}= PV\\[/tex]
We post our knows value and solve it:
[tex]5,600 * \frac{1-(1+0.10)^{-7} }{0.10}= PV\\[/tex]
PV = $27,263.15
