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Problem 6.12 Joseph Moore is saving for an Australian vacation in three years. He estimates that he will need $5,300 to cover his airfare and all other expenses for a week-long holiday in Australia. If he can invest his money in an S&P 500 equity index fund that is expected to carn an average annual return of 9.4 percent over the next three years, how much will he have to save every year if he starts saving at the end of this year? (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.) Savings

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Answer #1

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

5300=Annuity[(1.094)^3-1]/0.094

5300=Annuity*3.2908

Annuity=5300/3.2908

=$1610.55(Approx).

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