George and Laura will be retiring in four years and would like to buy a lake hou

Question

George and Laura will be retiring in four years and would like to buy a lake house. They estimate that they will need $550,000 at the end of four years to buy this house. They want to make four equal annual payments into an account at the end of each year. If they can earn 8% on their money, compounded annually, over the next four years, how much must they invest at the end of each year for the next four years to have accumulated $550,000 by retirement?

Please show the formula to get the answer.

Explanation / Answer

Let the amount saved each year = x

Future value of amount = 550,000

x*(1+8%)^3 + x*(1+8%)^2 + x*(1+8%)^1 + x= 550,000

x*((1+8%)^3 + (1+8%)^2 + (1+8%)^1 + 1) = 550,000

x= 122056.44

hey invest at the end of each year = $122,056.44

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