Question

What is the amount of 5 equal annual deposits (from the end of year 1 to the end of year 5) that can be provided by five annual withdrawals, of which the first is $ 1000 and is made at the end of year 6; subsequent withdrawals increase at a rate of 10% per year over the previous year, is the interest rate 10% compounded annually?

1. a) $ 789

2. b) $ 745

3. c) $ 1000

4. d) $ 1563

Answer 1

Answer

Option (b) is correct . $745

Explanation

Formula : F/Ao |(141) .~ Plaw Ao [1*y *-4] Aw COM 6) where, FAO → future equivalent annual cash deposit P/AW Present equivalent annual eash deposit withdrawal Ap → Annual eash deposit Aw Annual cash withdrawals interest rate no. of years. Now, in the formula ginen above (i), replace the respective values given in the sum, we ger (1-1050] = 1,000 [fi] A D-6005] 1000 (4.5454) A. (6.105) = 4545.4 4545.4 6.105 0.10 AD AO - 744.54 - Sys is Therefore, the amount of equal deposit for first 5 $744.54 ic. $745. Hence, option (b) is correct.

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