Question

The Nashville Geetars, a professional foosball team, has just signed its star player Harold "The Wrist" Thornton to a new contract. One of the terms requires the team to make a lump sum payment of $13.39 million to the The Wrist exactly 8 years from today. The team plans to make equal annual deposits into an account that will earn 5.17 percent in order to fund the payment. How much must the team deposit each year?

Answer 1

Here FV = $13.39 million or $13,390,000

nper = 8 and rate = 5.17%. Thus we have to compute the PMT.

The formula will be: PMT (5.17%, 8, 0, 13390000).

This will give a value of $1,393,722.33 (rounded to 2 decimal place). Thus the team will have to deposit $1,393,722.33 each year.

Year (n)	CF	1+r	FVIF = (1+r)^(8-n)	FV = CF*FVIF
1.00	1,393,722.33	1.0517	1.4231	1,983,441.41
2.00	1,393,722.33		1.3532	1,885,938.40
3.00	1,393,722.33		1.2866	1,793,228.48
4.00	1,393,722.33		1.2234	1,705,076.05
5.00	1,393,722.33		1.1633	1,621,257.06
6.00	1,393,722.33		1.1061	1,541,558.49
7.00	1,393,722.33		1.0517	1,465,777.78
8.00	1,393,722.33		1.0000	1,393,722.33
			Total	13,390,000.00