John Rider wants to accumulate $110,000 to be used for his daughter’s college ed

Question

John Rider wants to accumulate $110,000 to be used for his daughter’s college education. He would like to have the amount available on December 31, 2023. Assume that the funds will accumulate in a certificate of deposit paying 8% interest compounded annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Answer each of the following independent questions.

Required:

1. If John were to deposit a single amount, how much would he have to invest on December 31, 2018?

2. If John were to make five equal deposits on each December 31, beginning on December 31, 2019, what is the required amount of each deposit?

3. If John were to make five equal deposits on each December 31, beginning on December 31, 2018, what is the required amount of each deposit?

(For all requirements, Round your final answers to nearest whole dollar amount.)

Explanation / Answer

1. Amount = = 74864.

X * ( 1.08)5 = 110,000

X = 110,000 / (1.4693280768) = 74,864.

2. Annuity amount = 25,509

In this case, if we have to make 5 installments, it should be annuity immediate.

Present value of annuity immediate = 1 + { 1 - (1.08)-4 ] / 0.08

= 4.31212684

Annuity = 110,000 / 4.31212684 = 25,509

3. Annuity amount = 27,550

110,000 / [ 1 - (1.08)-5 ] / 0.08 = 110,000 / / 3.99271

= 27,550

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.