As part of your personal budgeting process, you havedetermined that in each of t

Question

As part of your personal budgeting process, you havedetermined that in each of the next 5 years you will have budgetshortfalls. In other words, you will need the amounts shown in thefollowing table at the end of the given year to balance yourbudget- that is, to make inflows equal outflows. You expect to beable to earn 8% on your investments during the next 5 years andwish to fund the budget shortfalls over the 5 years with a singleamount. End of the Year Budget 1     $5000 2       4,000 3       6,000 4        10,000 5        3,000 How large must the single deposit today into an account paying8% annual interest be to provide for full coverage of theanticipated budget shortfalls? As part of your personal budgeting process, you havedetermined that in each of the next 5 years you will have budgetshortfalls. In other words, you will need the amounts shown in thefollowing table at the end of the given year to balance yourbudget- that is, to make inflows equal outflows. You expect to beable to earn 8% on your investments during the next 5 years andwish to fund the budget shortfalls over the 5 years with a singleamount. End of the Year Budget 1     $5000 2       4,000 3       6,000 4        10,000 5        3,000 How large must the single deposit today into an account paying8% annual interest be to provide for full coverage of theanticipated budget shortfalls?

Explanation / Answer

Year Year end Budget Value PV Factors at 8% Present Values 1 5,000 0.9259 4,629.50 2 4,000 0.8573 3,429.20 3 6,000 0.7938 4,762.80 4 10,000 0.735 7,350 5 3,000 0.6806 2,041.80 Present Value 22,213.30 Present Value of SingleDeposit = $22,213.30 Year Year end Budget Value PV Factors at 8% Present Values 1 5,000 0.9259 4,629.50 2 4,000 0.8573 3,429.20 3 6,000 0.7938 4,762.80 4 10,000 0.735 7,350 5 3,000 0.6806 2,041.80 Present Value 22,213.30 Present Value of SingleDeposit = $22,213.30
Hope it may help you Year Year end Budget Value PV Factors at 8% Present Values 1 5,000 0.9259 4,629.50 2 4,000 0.8573 3,429.20 3 6,000 0.7938 4,762.80 4 10,000 0.735 7,350 5 3,000 0.6806 2,041.80 Present Value 22,213.30 Present Value of SingleDeposit = $22,213.30

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