Question

Frank wishes to increase his deposit by means of a six-year installment saving plan at an annual interest rate of 3%. If he wishes to get $1,000,000 when the plan matures, how much should he deposit every year? (Choose the nearest one.)

(A) $140,000 (B) $150,000 (C) $160,000 (D) $170,000

Answer 1

Answer: Nearest would be B then.

Step-by-step explanation:

Let's assume that Frank makes a deposit of x dollars every year, and the plan runs for six years at an annual interest rate of 3%. We can use the formula for the future value of an annuity to calculate the amount of money Frank needs to deposit every year.

The formula for the future value of an annuity is:

FV = PMT * (((1 + r)^n) - 1) / r

where:

FV = Future value of the annuity

PMT = Payment amount (the amount Frank deposits every year)

r = Annual interest rate

n = Number of payments (in this case, the number of years Frank saves)

We know that Frank wants to accumulate $1,000,000 at the end of the six-year period, so we can substitute these values into the formula:

1,000,000 = x * (((1 + 0.03)^6) - 1) / 0.03

Solving for x, we get:

x = 1,000,000 * 0.03 / (((1 + 0.03)^6) - 1)

x ≈ $147,558.81

Therefore, Frank needs to deposit approximately $147,558.81 every year for six years in order to accumulate $1,000,000 at the end of the savings plan.