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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Business

Allisson Harrell

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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Krista Khan · Answer 1

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