Question

1) A young couple wishes to accumulate $35,000 at the end of four years so that they may make a down payment on a house. What should their equal end-of-year deposits be accumulate the $35,000, assuming a 6% rate of interest?

            a. $7,718

            b. $8,000

            c. $6,915

            d. $8,765

2) The future value of $3,000 deposited at 11% compounded quarterly for each of the next six years is

            a. $5,211

            b. $5,611

            c. $4,976

            d. $5,751

Answer 1

Solution 1
	FV of annuity
	P = PMT x ((((1 + r) ^ n) - 1) / r)
	Where:
	P = the future value of an annuity stream	$         35,000
	PMT = the dollar amount of each annuity payment	P
	r = the effective interest rate (also known as the discount rate)	6%
	n = the number of periods in which payments will be made	4
	FV of annuity=	PMT x ((((1 + r) ^ n) - 1) / r)
	35000=	PMT x ((((1 + 6%) ^ 4) - 1) / 6%)
	Annual deposit=	35000/((((1 + 6%) ^ 4) - 1) / 6%)
	Annual deposit=	$           8,000
Solution 2
	FV of deposit
	r = the effective interest rate (also known as the discount rate)	2.75%	11%/4
	n = the number of periods in which payments will be made	24	6*4
	Initial deposit	$           3,000
	Amount after 6 years=	3000*(1+2.75%)^24
	Amount after 6 years=	$           5,751