Question

The Bello Corporation wishes to accumulate $2,000,000 for plant expansion. The funds are required on January 1, 2026. Bello intends to make five equal annual deposits in a fund that will earn interest at 7% compounded annually. The first deposit is made on January 1, 2021. Present value and future value facts are as follows:Present value of $1 at 7% for 5 periods 0.713Present value of an ordinary annuity of $1 at 7% for 5 periods 4.1Future value of an ordinary annuity of $1 at 7% for 5 periods 5.75Future value of an annuity due of $1 at 7% for 5 periods 6.15What is the amount of the required annual deposit?a. $325,203b. $347,826c. $487,805d. $426,000

Answer 1

Answer:

Option a ($325,203) is the right response.

Explanation:

The given values are:

Required Lump sum amount,

= $2,000,000

Future value of an annuity,

= 6.15

Now,

As we know,

The required amount of annual deposit will be:

=  $\frac{Required \ lump \ sum \ amount}{Future \ value \ of \ an \ annuity}$

On substituting the given values, we get

=  $\frac{2,000,000}{6.15}$

=  $325,203.25$

i.e.,

=  $325,203$ ($)