Find the annual deposit of equal amount needed in Year 2 through Year 5

Find the annual deposit of equal amount needed in Year 2 through Year 5 (End of Year 2 through End of Year 5) to provide for annual withdrawals of $1,500 at the end of years 6, 7, 9 and 10 at an interest rate of 12% per year compounded yearly.

Solutions

Expert Solution

Using formula P = F /(1+i)^t

Present worth of withdrawal at EOY 5 = 1500 / (1+0.12) + 1500 / (1+0.12)^2 + 1500 / (1+0.12)^4 + 1500 / (1+0.12)^5

= 1500 / (1.12) + 1500 / (1.12)^2 + 1500 / (1.12)^4 + 1500 / (1.12)^5

= 4339.49

Annual deposit amount from EOY 2 to EOY 5 = 4339.49 *(A/F,12%,4)

= 4339.49 *(0.12/((1 + 0.12)^4-1))

= 4339.49 *(0.12/((1.12)^4-1))

= 4339.49 *0.209234

= 907.97

Rahul Sunny answered 1 year ago

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