Question

7. Calculate annuity cash flows

Your goal is to have $20,000 in your bank account by the end of nine years. If the interest rate remains constant at 10% and you want to make annual identical deposits, you'll have to deposit (1,325.53, 1178.25, 1767.37, 1030.97,1472.81, or 1620.09)   into your account at the end of each year to reach your goal.

If your deposits were made at the beginning of each year rather than an at the end, the amount of your deposit would change by (133.89, 113.81, 180.75, 167.36, 127.20, or 100.42) if you still wanted to reach your financial goal by the end of nine years.

Answer 1

Answer a.

Desired Sum after 9 years = $20,000
Annual Interest Rate = 10%

Annual Deposit * FVA of $1 (10%, 9) = $20,000
Annual Deposit * (1.10^9 - 1) / 0.10 = $20,000
Annual Deposit * 13.57948 = $20,000
Annual Deposit = $1,472.81

Answer b.

Desired Sum after 9 years = $20,000
Annual Interest Rate = 10%

Annual Deposit * FVAD of $1 (10%, 9) = $20,000
Annual Deposit * 1.10 * (1.10^9 - 1) / 0.10 = $20,000
Annual Deposit * 14.93742 = $20,000
Annual Deposit = $1,338.92

Change in deposit = $1,472.81 - $1,338.92
Change in deposit = $133.89