Carl would like to save $100,000 by his 40th birthday to pay for a special midlife crisis vacation. He plans to achieve...
Carl would like to save $100,000 by his 40th birthday to pay for a special midlife crisis vacation. He plans to achieve this by investing equal annual amounts each year beginning on his 24th birthday and ending and including a payment on his 40th birthday. If the investment pays an 11 percent interest rate, what is the size of each annual payment Carl needs to invest?
Homework Answers
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Contribution is made from 24 th birthday to 40th birthday. |
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It means number of annual payments = 17 |
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and payment is from beginning of year |
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Interest rate = 11% or 0.11 |
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Future value of annuity formula = P *{ (1+r)^n - 1 } / r |
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100000 = P *((1+0.11)^17 - 1)/0.11 |
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| 100000 = P *44.50084281 | ||
| P = 100000 /44.50084281 | ||
| P =2247.14845 | ||
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So, size of each equal annual payment required is $2247.15. |
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