As part of your retirement plan, you want to set up an annuity in which a regular payment of $35,000 is made at the end of each year. You need to determine how much money must be deposited earning 6% compounded annually in order to make the annuity payment for 20 years.

Because each payment is made at the end of the year, use the present value formula for an ordinary annuity: PV = 35,000 × [1 − (1.06)^−20] ÷ 0.06. This gives approximately $401,447.24, the amount that must be deposited now to fund the 20 annual payments. The correct choice is $401,447.24.

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