Question

You are planning for your retirement and want to have $1,500,000 by the time you retire 45 years from today. You also want to have $250,000 in 20 years to help fund your children's college education. What annual end of the year deposit would you have to make for 45 years into an account paying 8% compounded annually to meet your future goals?
A. 4,528
B. $3,881
C. $6,906
D. $8,311

Answer 1

Answer:

The correct option is D. $8,311

Explanation:

The steps to reach the deposit ammount of $8,311 are the following:

1) Calculate Future Value of cash flow= 250,000×(1+0.08)∧25=1,712,118.80

2) Calculate the total ammunt to be accumulated by the end of year 45

=1,712,118.80+1,500,000=3,212,118,80

3) Finally you have to calculate the annual deposit to achieve the 3,212,118,80 in 45 years

FV= 3,212,118,80

r=8%

n=45

3,212,118.80= P(  (1+0.08)∧45-1 )                                                                                                                                                                      

                                  0.08

= 8,311. Annual end of the year deposit