Question
In: Finance
Igor needs to have $31,500 ready in six years from now for a house down payment....
Igor needs to have $31,500 ready in six years from now for a house down payment. He plans to fund this by making weekly deposits into an account that earns 5.53% compounded weekly. What is the size of the weekly payments Igor must make?
It should be the equation for Future Value of Annuity and the correct answer is 85.19 according to my professor.
This is how she solved it below, but I don't understand since I keep getting 24.017...
Weekly interest rate = 5.53%/52 = 0.106%
FV of annuity = P * { [1+r]^t-1]/r }
31,500 = P * { [1+0.106%]^(52*6)-1]/0.106% }
P = $85.19
Solutions
Expert Solution
| Formula for future value of Annuity : |
| FV= A [ {(1+k)n-1}/k] |
| FV = Future annuity value=31500 |
| A = periodical (weekly) investment =? |
| K=interest rate=5.53%/52=0.106% |
| N=periods=52*6 weeks =312weeks |
| 31500=A*[1.00106^(312) -1]/0.106% |
| 31500=A*[1.392-1]/0.106% |
| 31500=A*369.55 |
| A=31500/369.55=$85.2 |
| So Size of the weekly payments is $85.2 |
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