Question

You want to save $59,400 in the next 8 years to buy a car. The savings account you are thinking about offers 4.40% annually. You also plan to increase your annual deposits by 2.50% each year. What should be your deposit at the end of the first year?

a.

$6,945

b.

$7,023

c.

$5,216

d.

$6,355

e.

$5,852

Answer 1

Future Value to accumulate in 8 years = $59,400

Calculating the First payment using FV of Growing annuity formula:-

Where, C= First Payments

r = Periodic Interest rate = 4.40%

g = growth rate of subsequent payment = 2.50%

n= no of periods = 8

C = $5852.30

So, your deposit at the end of the first year is $5852

Option E

If you need any clarification, you can ask in comments.    

If you like my answer, then please up-vote as it will be motivating