Problem 4-26 Reaching a Financial Goal You need to accumulate $10,000. To do so,

Question

Problem 4-26 Reaching a Financial Goal You need to accumulate $10,000. To do so, you plan to make deposits of $1,950 per year-with the first payment being made a year from today-into a bank account that pays 8.05% annual interest. Your last deposit will be less than S1,950 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number s year(s) How large will the last deposit be? Round your answer to the nearest cent

Explanation / Answer

we need to find future value of annuity

FV of annuity = P * ((1 + r)^n - )/r

P is annual payment

r is interest rate

n is time period we will take 4 to get the future value after 4 years

FV of annuity = 1950 * ((1.0805)^4 - 1)/.0805 = $8793.41

At the end of year 5 it will be = $8793.41 * 1.0805 = $9501.28

Contribution in 5th year = $10000 - $9501.28 = $498.72

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