Question

How much should be invested each year for 10 years to provide you with $3000 per year for the next 35 years? Assume a 4.5% interest rate. (Round your final answer to two decimal places.)

Answer 1

Periodic payments per year to be provided for next 35 years = $3000

Calculating the Present Value of these above periodic payments:-

Where, C= Periodic Payments = $3000

r = Periodic Interest rate = 4.5%

n= no of periods = 35

Present Value = $52,383.04

So, this present value will be the future value of the Periodic deposits to be made.

Now, Calculating the Periodic deposits to be maded each year for 10 years using Future Value of ordinary annuity formula:-

Where, C= Periodic Deposits

r = Periodic Interest rate = 4.5%

n= no of periods = 10

Future Value = $52,383.04

C = $4262.87

So, the amount to be invested each year for 10 years to provide you with $3000 per year for the next 35 years is $4262.87

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