Ashlee wants to make 10 equal deposits from year 1 to 10 in a bank account that

Question

Ashlee wants to make 10 equal deposits from year 1 to 10 in a bank account that pays 8% i terest This way, she can wmtraw $11,200 each year trom year 11 to 15 How much should she deposit from year 1 to 107 Cick the icon to view the interest factors for dscrete compounding when ," 8% per year She has to depos SRound to the nearest doller More Into Compound Present Compound Sinking Present Capital Gradient Grdient Uniform Present Amount Worth Recovery Factor Factor Factor 1 0800 1.1664 0 9259 0 8573 2597 0.7938 3605 07350 0.6806 2.0800 32464 4.5061 5 8666 10000 0 4808 0 3080 0 2219 0.1705 0.9259 7833 2.5771 .3121 5608 0 3880 0 3019 3.9927 2505 0.4808 0 9487 1.4040 18465 2.4450 46501 3724 1.4693 15869 0.6302 05835 0.5403 0.5002 0.4632 0.1363 46229 5.2064 5.7466 6 2469 6.7101 3369 0 8 9228 0 2163 0 1921 18509 1.9990 2 1589 01121 106366 0.0940 12 4876 00801 4 4866 00690 2763 105233 2 6937 14 3 0985 4910 21.8081 3.8713 17 8061 0.1601 0.1490 Enter your answer in the answer box and then clck Check Answer 25.9768

Explanation / Answer

Present value of cash withdrawals before beginning of cash flow:

PV = C x P/A (r, n)

C = Periodic cash withdrawals

r = Rate of interest = 8 %

n = No. of periods = 5

PV = $ 11,200 x P/A (8%, 5)

     = $ 11,200 x 3.9927 = $ 44,718.24

This $ 44,718.24 is the future value of cash deposits, which can be calculated as:

FV = P x F/A (r, n)

P = Periodic cash deposit

r = Rate of interest = 8 %

n = No. of periods = 10

$ 44,718.24 = P x F/A (8 %, 10)

                     = P x 14.4866

P = $ 44,718.24/ 14.4866

   = $ 3,086.87

She has to deposit $ 3,086.87 annually.

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