As part of your retirement plan, you want to set up an annuity in which a regular payment of $50,000 is made at the end of each year. You need to determine how much money must be deposited earning 4.5% compounded annually in order to make the annuity payment for 20 years.

Because each $50,000 payment is made at the end of the year, use the present value of an ordinary annuity: PV = 50,000 × [1 − (1.045)^−20] ÷ 0.045. This gives approximately $650,396.82, so the best answer is choice b, $650,396.82.

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