Question

You want to have $100,000 in 30 years to pay for your long-awaited cruise around the world. You open a savings bank account for this purpose, and you want to reach the above sum by making equal annual deposits. You will make the first deposit today and the last one in 30 years. You are assured to earn an EAR of 5% on money deposited in your account. Your annual payments should be (rounded to the nearest dollar):

Answer 1

the annual payment should be $6,505

Step-by-step explanation:

The computation of the annual payment should be

Annual Payment = P × r × (1+r)^n÷ (1+r)^n - 1

= 100,000 × 0.05 × (1 +0.05^)30 ÷ (1 + 0.05)^30 - 1

= 100,000× 0.05 × 4.32194237515 ÷ 4.32194237515 - 1

= $6,505

Hence, the annual payment should be $6,505