You need $25,256 at the end of 8 years, and your only investment outlet is an 8

Question

You need $25,256 at the end of 8 years, and your only investment outlet is an 8 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.

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.)

What amount could you pay at the end of each year annually for 8 years to achieve this same objective? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

You need $25,256 at the end of 8 years, and your only investment outlet is an 8 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.

Explanation / Answer

A.

PV = FV / (1 + i)n

= $25,256 / (1.08)8

= $13,645.03 ( i= rate of interst, n= number of Years PV= Present Value, FV= Future Value)

single payment to be made at the beginning of the first year to achieve this objective = $13,645.03

B.

A = FVA / {[(1 + i)n-1] / i}

= $25,256 / {[(1.08)8 - 1 / .08}

= $2,374.44 ( A= Annual payment to be made, FVA =Future value of Annuity)

Amount to be paid at the end of each year annually for 8 years to achieve this same objective is $2,374.44

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