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28 August, 23:13

Your goal is to have $12,500 in your bank account by the end of six years. If the interest rate remains constant at 9% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goal

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  1. 28 August, 23:58
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    Annual deposit = $1,661.497

    Explanation:

    This investment scheme been considered is known as sinking funds.

    A Sinking Fund involves saving a series of equal amount periodically invested at certain rate of interest to accumulate a target amount in the future.

    The amount to be deposited periodically can be determined as follows:

    A = FV / ((1+r) ^ (n) - 1) / n)

    A - annual deposit, FV - future value - $12,500 r - 9%, n - 6

    So we can apply this formula as follows:

    A = 12,500 / (1.09^ (6) - 1) / 0.09

    A = $1,661.497
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