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31 January, 23:14

On March 15, Year 1, Kathleen Corp. adopted a plan to accumulate $1,000,000 by September 1, Year 5. Kathleen plans to make 4 equal annual deposits to a fund that will earn interest at 10% compounded annually. Kathleen made the first deposit on September 1, Year 1. Future value and future amount factors are as follows:

Future value of $1 at 10% for 4 periods

1.46

Future amount of ordinary annuity of $1

at 10% for 4 periods

4.64

Future amount of annuity in advance of $1

at 10% for 4 periods

5.11

Kathleen should make 4 annual deposits (rounded) of

A. $250,000

B. $195,700

C. $684,930

D. $215,500

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Answers (1)
  1. 1 February, 00:15
    0
    B) $195,700

    Explanation:

    Future value of $1 at 10% for 4 periods = 1.46 Future amount of ordinary annuity of $1 at 10% for 4 periods = 4.64 Future amount of annuity in advance of $1 at 10% for 4 periods = 5.11

    Since Kathleen Corp. is depositing the money in advance, she must use the future amount of annuity in advance = 5.11 in order to determine the future value of the 4 deposits:

    $250,000 x 5.11 = $1,277,500

    $195,700 x 5.11 = $1,000,027

    $684,930 x 5.11 = $3,499,992

    $215,500 x 5.11 = $1,101,205
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