Question

In: Finance

Suppose the Blue Hand Hospitality Enterprises Co. wishes to set aside an equal, annual, end-of-year amount...

Suppose the Blue Hand Hospitality Enterprises Co. wishes to set aside an equal, annual, end-of-year amount in an investment account earning 9.50% per year over the next five years. The firm wants to have $5 million in the account when the account matures. How much must be deposited in the account at the end of each year?

Group of answer choices

$827,182.09

$891,410.73

$794,569.44

$844,200.00

Expert Solution

- Future Value required in 20 years is $\$ 5,000,000$

Calculating the Annual Deposit to be made each year using Fv of ordinary annuity formula:-

FutureValue $=C * \frac{\left[(1+r)^{n}-1\right]}{r}$

Where, $\mathrm{C}=$ Periodic Deposit

$r=$ Periodic Interest rate $=9.50 \%$

$n=$ no of periods $=5$

$5,000,000=C * \frac{\left[(1+0.095)^{5}-1\right]}{0.095}$

$5,000,000=C * \frac{[1.57423874093-1]}{0.095}$

$C=\$ 827,182.09$

So, deposited in the account at the end of each year is $\$ 827,182.09$

Option 1

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jeff jeffy answered 2 years ago

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