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3 October, 18:30

A sinking fund is established by a working couple so that they will have $60,000 to pay for part of their daughter's education when she enters college. If they make deposits at the end of each 3-month period for 8 years, and if interest is paid at 10%, compounded quarterly, what size deposits must they make

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  1. 3 October, 22:11
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    quarterly deposit = $12,460.99

    Explanation:

    Giving the following information:

    FV = $60,000

    Number of periods = 4*8 = 32

    i = 0.10/4 = 0.025

    To calculate the quarterly deposit required, we need to use the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = quarterly deposit

    Isolating A:

    A = (FV*i) / {[ (1+i) ^n]-1}

    A = (60,000*0.025) / [ (1.025^32) - 1]

    A = 12,460.99
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