As part of your personal budgeting process, you have determined that at the end
ID: 2772780 • Letter: A
Question
As part of your personal budgeting process, you have determined that at the end of each of the next five years you will incur signigicant maintenance expense on your home. You'd like to cover these expenses by depositing a lum sum in an account today that earns 8%. You will gradually draw down this account each year as maintenance bills come due.
How much money must you deposit today to cover all of the expenses?
Please show your work:
End of Year Expense 1 $5,000 2 $4,000 3 $6,000 4 $10,000 5 $3,000Explanation / Answer
Interest rate 8% Cash flows 1 2 3 4 5 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 5000 4000 6000 10000 3000 Discounted @8% 22214.02648 4629.63 3429.355 4762.993 7350.299 2041.75 So the person must deposit 22214.02648 in the account that wil earn 8%,to cover all expenses.
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