Question

Abby Mia wants to know how much must be deposited in her local bank today so that she will receive yearly payment of $18,000 for 20 years at a current rate of 9% compounded annually

Answer 1

Explanation:

The formula for principle interest + total for compounded annually is

total = deposit ( 1 + rate) ^ time

In this case:

She wants to recieve 18 000 yearly, so in twenty years, that's a total of

$360 000

360 000 = x (1 + 9%) ^20

360 000 = 5.60x

x = $ 64235 (2 dp)

That's how much abby needs to put in her account to receive 18 000 per year, but because it is compounded interest, it is impossible to receive the same amount per year so it would be a total of 18 000 a year for twenty years.

Hope this helps,

Cate