Question

Jane wants to save money to buy a motorcycle. She invests in an ordinary annuity that earns 4.2% interest, compounded quarterly. Payments will be made at the end of each quarter. How much money will she need to pay into the annuity each quarter for the annuity to have a total value of $7000 after 3 years?

Answer 1

Answer:

she need to pay is $550.40

Step-by-step explanation:

given data

interest = 4.2 % compounded quarterly = 0.042 / 4 = 0.0105

future value = $7000

time = 3 year = 3 × 4 = 12 months

to find out

How much money she need to pay

solution

we will apply here formula for future value for compound quarterly

that is

future value = principal × $\frac{(1+r)^{t} -1 }{r}$    .............1

put here all these value

future value = principal × $\frac{(1+r)^{t} -1 }{r}$

7000 = principal × $\frac{(1+0.0105)^{12} -1 }{0.0105}$

principal = 550.40

so she need to pay is $550.40