Question

B.5. The citizens of a resort town in the mountains want to build a civic center at a cost of $1,000,000. You are asked for an opinion on the financial feasibility of the civic center. A philanthropist with a vacation home in the area promises to donate $700,000 if the town can raise the other $300,000 within three years. You estimate that the town can hold a series of benefits during the vacation months of June, July, August, and September and raise $20,000 per month. Assume it is now the end of September. The first deposit of $20,000 will be made at the end of next June. Funds on deposit bear interest at 7.2 percent per year, compounded monthly. The deadline for reaching the $300,000 balance in the fund is 36 months from now and will include the deposit and interest payment at the end of September, three years from now. (a) How much will be in the fund at that time if all projections are correct? (b) By how much should the monthly deposits be increased or decreased to come out to exactly the $300,000 amount? (Can this increase or decrease be found simply by multiplying the ratio of the actual balance to the desired balance times the monthly deposit?)