John Rider wants to accumulate $100,000 to be used for his daughter\'s college e

Question

John Rider wants to accumulate $100,000 to be used for his daughter's college education. He would like to have the amount available on December 31, 2018. 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. If John were to deposit a single amount, how much would he have to invest on December 31, 2013? If John were to make five equal deposits on each December 31, begining on December 31, 2014, what is the required amount of each deposit? If John were to make five equal deposits on each December 31, beginning on December 31, 2013, what is the required amount of each deposit?

Explanation / Answer

Future value FV = 100,000 Rate = 8% 1. Single deposit, nper = 2018-2013 = 5 Yrs SO we have FV = PV*(1+i)^n So PV = FV/(1+i)^n = 100,000/(1+8%)^5 = $68,058 SO a single deposit of $68,058 will become $100,000 in 5 yrs at 8% annual compunding 2. We have 5 Equal deposit = PMT SO we have Rate = 8%, nper = 5, FV=100,000, PV=0 So Annual Payments = PMT(Rate,nper,PV,FV) = PMT(8%,5,,100000) = $17,046 3. We have 5 Equal deposit = PMT ..Starting from begining of year. So type = 1 which indicates Immediate. Default type =0 which means 'Due'. SO we have Rate = 8%, nper = 5, FV=100,000, PV=0 So Annual Payments = PMT(Rate,nper,PV,FV,type) = PMT(8%,5,,100000,1) = $15,783

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

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