Your goal is to have $12,500 in your bank account by the end of six years. If the interest rate remains constant at 9% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goal

Question

Lewis Mcfarland

Business

6 August, 09:35

Your goal is to have $12,500 in your bank account by the end of six years. If the interest rate remains constant at 9% and you want to make annual identical deposits, how much will you need to deposit in your account at the end of each year to reach your goal

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Answers (1)

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Adalynn Mccoy · Answer 1

Annual deposit = $1,661.497

Explanation:

This investment scheme been considered is known as sinking funds.

A Sinking Fund involves saving a series of equal amount periodically invested at certain rate of interest to accumulate a target amount in the future.

The amount to be deposited periodically can be determined as follows:

A = FV / ((1+r) ^ (n) - 1) / n)

A - annual deposit, FV - future value - $12,500 r - 9%, n - 6

So we can apply this formula as follows:

A = 12,500 / (1.09^ (6) - 1) / 0.09

A = $1,661.497