Question

a. If you set a goal to accumulate a total of 50,000 dollars ten years from today for your child’s education. You decide to start to deposit a fixed amount of money in your savings account, once each year, ten times for the next ten years, beginning today. Assume that the annual interest rate is 4%, how much do you have to deposit each year.  

Answer 1

Future Value to accumulate in 10 years = $50,000

Calculating the equal periodic annuity starting at the beginning of each year using Future value of annuity due formula:-

Where, C= Periodic deposits

r = Periodic Interest rate = 4%

n= no of periods =10

Future Value = $50,000

C = $4004.37

So, amount to be deposited each year = $4004.37

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