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Math Help - Present Annuity?

  1. #1
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    Present Annuity?

    John wishes to set up an account for his grandfather so that he can have some extra money each month. John wants his grandfather to be able to withdraw $110.00 per month for the next 2 years. How much must John invest today at 7% per year compounded monthly so that his grandfather can withdraw $110.00 per month for the next 2 years?

    I am unsure of the formula to use for this problem. Is this a present annuity problem? If so, how do I work it?

    Thanks in advance!
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  2. #2
    MHF Contributor
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    I read this problem in two possible ways. If John wants to make this investment before his grandfather starts withdrawing is one scenario and another is if his grandfather will start withdrawing the same month as the investment. Which is it?

    I am guessing the first and if so, first consider how much money $110 a month for two years is in total. Then you can use a basic compound interest formula to solve for the principal amount needed.
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