Question

Problem 6-2 Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns. Click here to view factor tables x Your answer is incorrect. Try again. What is the amount of the payments that John Winslow must make at the end of each of 8 years to accumulate a fund of $96,300 by the end of the 8th year, if the fund earns 8% interest, compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Payment at the end of each year $. LINK TO TEXT LINK TO TEXT LINK TO TEXT X Your answer is incorrect. Try again. Steve Hitchcock is 37 years old today and he wishes to accumulate $543,000 by his 58th birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his 37th through his 57th birthdays. What annual deposit must Steve make if the fund will earn 8% interest compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Annual deposit $. LINK TO TEXT LINK TO TEXT LINK TO TEXT

Answer 1

1. Here, the payments will be same every year, so it is an annuity. The future value of annuity is $96300. We will use the future value of annuity table here in the following equation:

Future value of annuity = Annual payments * FVIFA (8%, 8 Years)

The value of FVIFA (8%, 8 Years) from the table is 10.6366

Putting the values in the above formula, we get,

$96300 = Annual payments * 10.6366

Annual payments = $96300 / 10.6366

Annual payments = $9054

2. Here, the payments will be same every year, so it is an annuity. Since the payments start at the beginning of each year, so it will be annuity due. The future value of annuity due is $543000. Time period of deposits is 21 (i.e. 58 - 37). We will use the future value of annuity due table here in the following equation:

Future value of annuity due = Annual payments * FVIFAD (8%, 21 Years)

The value of FVIFAD (8%, 21 Years) from the table is 54.4568

Putting the values in the above formula, we get,

$543000 = Annual payments * 54.4568

Annual payments = $543000 / 54.4568

Annual payments = $9971