Question

PPI wants to accumulate a fund of $240,000 in six years (by December 31, 2024) to retire a long-term note. Four years ago, the board of directors had passed a resolution instructing the treasurer to make ten equal annual deposits in a fund earning 6% compounded annually. Because no one knew how to compute the equal deposits, the treasure decided to deposit $24,000 at the end of each year. The fourth deposit was made on December 31, 2018. What equal annual deposits should be made during the next six years, starting on Dec 31, 2019, if exactly $240,000 is to be accumulated in the fund?

Answer 1

Step 1: Amount accumulated till 31 Dec 2018

Using financial calculator

Input: PMT = 24000

N=4

I/Y= 6

Hence FV = 104,990.78

Amount accumulated on 31 Dec 2018=104,990.78

Step 2:

Using financial calculator

Input: PV= 104990.78

I/Y = 6

N=6

FV= 240000

Find PMT as 13,055.83

Hence annual contributions are $13055.83