Question

Your goal is to have $12,500 in your bank account by the end of six years. If the interest rate remains constant at 9% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goal

Answer 1

Answer:

Annual deposit = $1,661.497

Explanation:

This investment scheme been  considered is known as sinking funds.

A Sinking Fund involves saving a series of equal amount periodically invested at certain rate of interest to accumulate a target amount in the future.

The amount to be deposited periodically can be determined as follows:

A= FV/ ((1+r)^(n) - 1)/n)

A- annual deposit, FV- future value - $12,500 r- 9%, n- 6

So we can apply this formula as follows:

A = 12,500/ (1.09^(6)-1)/0.09

A = $1,661.497