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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Business

Alyvia Acosta

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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Yeller · Answer 1

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