You want to have $90,000 in your savings account 10 years from now, and you\'re

Question

You want to have $90,000 in your savings account 10 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.8 percent interest, what amount must you deposit each year?You want to have $90,000 in your savings account 10 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.8 percent interest, what amount must you deposit each year?

Are they looking for cash flow? please show solution with steps. Thank you

Explanation / Answer

1) Calculation of Amount required to be deposited each year :

Future value of amount = $90000

Annual interest rate = 6.8%

Time period = 10 years

Given that Deposits or payments are should be equal payments.

Lets assume P = Annual equal deposit

n = time period

r = Rate of interest.

FVA = P*((1+r)n - 1) / r)

90000 = P*((1.068)10 - 1) /0.068)

= P*((1.93068 - 1) /0.068)

= P*(0.93068 / 0.068)

= P *13.6865

P = 90000 / 13.6865

= $6576

   So that $6576 need to be deposited every year to get $90000 after 10 years @ 6.8% interest.

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