To find out how much the investor should invest today to receive the desired monthly payment for the next 10 years, we can use the present value of an annuity formula:
PV = PMT * ((1 - (1 + r)^-n) / r)
Where:
PV = Present Value
PMT = Monthly payment ($3,500)
r = Interest rate (5% or 0.05)
n = Number of periods (10 years or 120 months)
Plugging in the values:
PV = $3,500 * ((1 - (1 + 0.05)^-120) / 0.05)
PV = $3,500 * ((1 - 0.61391) / 0.05)
PV = $3,500 * (0.38609 / 0.05)
PV = $3,500 * 7.7218
PV = $27,025.30
Therefore, the investor should invest approximately $27,025 today to receive the desired monthly payment for the next 10 years.
A real estate investor wants to purchase a rental property that generates an annuity payment of $3,500 per month. If the interest rate is 5 percent, how much should the investor invest today to receive the desired monthly payment for the next 10 years? Round your answer to the nearest whole dollar.
1 answer