The sum you must deposit as a lump sum today to achieve this goal at an interest rate of 6.6 percent, compounded annually is $48,740.946.
What is lump sum payment?
A lump-sum payment is a payment made all at once, even though opposed to payments made in installments.
- A lump-sum payment is just not appropriate per each beneficiary; for some, the funds may be better annuitized as regular payments.
- An annuity may have a greater net present value (NPV) than another a lump sum depending on interest rates, tax impact, and penalties.
Now, according to question;
The formula for present value is;
Present Value = Future Value/(1 + interest Rate)^t
T = time period
The future value is $175,000.
The rate of interest is 6.6% compounded annually.
The number of years are 20.
Substituting all the values in the formula;
Present Value = 175,000/(1 + 0.066)^20
Present Value = $48,740.946
Therefore, the present value is found to be $48,740.946.
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