Question

Your parents intend to celebrate their 45th wedding anniversary by taking a month-long trip to Africa. That trip will occur in seven years. They estimate that the cost will be $38,000. How much will they need to save at the beginning of each year (i.e., seven contributions) in order to accumulate the needed funds if the assets will earn a 6.8% rate of return?

Answer 1

4267,74

Step-by-step explanation:

The question suggests the use of simple interest.

With the use of this type of interest, the interest obtained is calculated by multiplying the capital by the interest rate and by time.

In this case, the statement indicates that 7 contributions will be made (one per year) so that, each contribution will earn interest based on its duration. Starting from the equation that Cf = C + C. i. t

we determine the equation for seven contributions, one every year

Cf = (C + C.i.7) + (C + C.i.6) + (C + C.i.5) + (C + C.i.3) + (C + C.i.3) + (C + C.i.2) + (C + C.i.1)

38000 = (C + C. 0.476) + (C + C. 0.408) + (C + C. 0.34) + (C + C. 0.272) + (C + C. 0.204) + (C + C. 0.136 ) + (C + C. 0.068)

38000 = 8.904C

38000 / 8.904 = C

4276.74 = C

Contributions of that amount must be made every year to obtain the 38000 in year seven.