You would like to have $4,000 in 4 years for a special vacation following gradua

Question

You would like to have $4,000 in 4 years for a special vacation following graduation by making deposits at the end of every six months in an annuity that pays 6% compounded semiannually a. Use one of the formulas below to determine how much you should deposit at the end of every six months. 1+-1 b. How much of the $4,000 comes from deposits and how much comes from interest? a. In order to have $4,000 in 4 years, you should deposit at the end of every six months. (Do not round until the final answer. Then round up to the nearest dollar.)

Explanation / Answer

Future value of annuity:

Option B

P= A*(r/n)/[(1+r/n)^nt - 1]
P - Periodic payment

A - Future value
r - rate per period
n - number of periods in a year
t - no. of years

b.

P= A*(r/n)/[(1+r/n)^nt - 1]

P = 4000*(0.06/2)/((1+0.06/2)^(2*4) - 1) = 449.83

P = $450

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