$659,986.20 is the amount the client need to invest now. as client wishes to purchase an annuity that pays $120,000 each year for 10 years
Explanation:
Annual Payment = $120,000
Number of Payments = 10
Interest Rate = 6%
First payment is made in 6 years from now
Amount Invested = $120,000/1.06^6 + $120,000/1.06^7 + … + $120,000/1.06^14 + $120,000/1.06^15
Amount Invested = $120,000 (1/1.06)^5 (1 - (1/1.06)^10) / 0.06
Amount Invested = $120,000 * 5.499885
Amount Invested = $659,986.20
Thus, To purchase this annuity, the customer must make a current investment of $659,986.20.
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