Question

Mary wants to accumulate $25,000 by the end of five years for her son's college education. She will make the first of five equal annual installments one year from today. If the account into which she deposits the money earns 12% compound annual interest, what amount must each deposit be

Answer 1

Answer:

Amount of annual deposit = $3935

Explanation:

Below is the calculation of each deposit:

Future value of deposit = $25000

Number of years = 5 years

The interest rate on the deposit = 12%

Amount of annual deposit = Future value (A/F, r, n)

Here, r = Rate of interest

n = 5

Now insert the values.

Amount of annual deposit = 25000 (A/F, 12%, 5)

Amount of annual deposit = 25000 (0.1574)

Amount of annual deposit = $3935