Question

Cathy would like to have accumulated $25,000 on her IRA account in 5 years. The return is 3.1%. How much should Cathy deposit in her account annually?

$1,329.94
$2,711.73
$4,699.46
$5,000.00

Answer 1

Annual deposit= $4,699.46

Explanation:

Giving the following information:

Future value (FV)= $25,000

Number of periods (n)= 5 years

Interest rate (i)= 3.1% = 0.031

To calculate the annual deposit, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (25,000*0.031) / [(1.031^5) - 1]

A= $4,699.46