You need $25,056 at the end of 6 years, and your only investment outlet is an 12

Question

You need $25,056 at the end of 6 years, and your only investment outlet is an 12 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. What single payment could be made at the beginning of the first year to achieve this objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Single Payment Made? b. What amount could you pay at the end of each year annually for 6 years to achieve this same objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Amount to be paid?

Explanation / Answer

We have to find PV of future Value which can be found using following formula(Appendix B)

PV= FV*PVIF(12%,6)

=25056*0.5066

PV=12693.37

Thus $12693.37 invested at the beginning of year and invested @12% for 6 years willl yield $25056

Now in second case we have to find per year payment

formula is (Appendix C)

Amount= FV/FVIFA(12%,6)

=25056/8.1152

Amount=$3087.539

Thus $3087.54 invetsed every year for 6 years at 12% will give $25056

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