Question

Solve by using tables Table 12-1 and Table 12-2. Paul and Donna Kelsch are planning a Mediterranean cruise in 6 years and will need $5,500 for the trip. They decide to set up a "sinking fund" savings account for the vacation. They intend to make regular payments at the end of each 3 month period into the account that pays 6% interest compounded quarterly. What periodic sinking fund payment (in $) will allow them to achieve their vacation goal? (Round your answer to the nearest cent.) $

Solve by using tables Table 12-1 and Table 12-2.

Paul and Donna Kelsch are planning a Mediterranean cruise in 6 years and will need $5,500 for the trip. They decide to set up a "sinking fund" savings account for the vacation. They intend to make regular payments at the end of each 3 month period into the account that pays 6% interest compounded quarterly. What periodic sinking fund payment (in $) will allow them to achieve their vacation goal? (Round your answer to the nearest cent.)

$

Answer 1

this can be solved using future value of annuity formula

fututre value of annuity = P[(1+r)n - 1 / n ]

where P = quarterly payments

r = interest rate per period

n = number of periods

here in given question we already know future value = $5500

r = 6% since quarterly compounding it will be 6 / 4 = 1.5%

n = 6 x 4 = 24 periods

we need to find P

so , 5500 = P[(1+0.015)24 - 1 / 0.015 ]

P = 5500 / 28.6335208

P = $192.08