Question

The need for a large-capacity water supply system is forecast to occur 4 years from now. At that time, the system required is estimated to cost $40,000. If an account earns 12% per year compounded annually, the amount that must be placed in the account at the end of each year in order to accumulate the necessary purchase price is most nearly:

Answer 1

$8,369.38

Step-by-step explanation:

The amount that must be placed in the account can be viewed as a yearly instalment usually represented by PMT. The PMT is calculated as :

PV = $0

FV = $40,000

N = 4

P/yr = 1

I/yr = 12%

PMT = ??

Using a Financial calculator, PMT is $8,369.38

thus,

The amount that must be placed in the account at the end of each year is $8,369.38.