Question

(Calculating annuity payments) The Aggarwal Corporation needs to save $10 million to retire a $10 million mortgage that matures in 10 years. To retire this mortgage, the company plans to put a fixed amount into an account at the end of each year for 10 years. The Aggarwal Corporation expects to earn 9 percent annually on the money in this account. What equal annual contribution must the firm make to this account to accumulate the $10 million by the end of 10 years?

Answer 1

Answer:

Ans. The equal amount of money that Aggarwal Corporation needs to put into this account, for 10 years, at the end of each year is $658,200.90

Explanation:

Hi, in order to find the equal amount of money to put into this account, that returns 9% annually, for ten years, and to be paid at the end of each year, we need to use the following formula and solve for "A".

$Future Value=\frac{A((1+r)^{n}-1) }{r}$

Where:

Future Value= $10,000,000

r= 0.09

n=10

So, everything should look like this.

$10,000,000=\frac{A((1+0.09)^{10}-1) }{0.09}$

$10,000,000=A(15.1929297)$

$\frac{10,000,000}{15.1929297} =A$

$A=658,200.9$

The answer is: Aggarwal Corporation needs to save $658,200.90 every year, at the end of the year, for ten years in order to get $10,000,000 in ten years to retire its mortgage.

Best of luck.