Question

Steven White is planning to save up for a trip to Europe in three years. He will need $8,100 when he is ready to make the trip. He plans to invest the same amount at the end of each of the next three years in an account paying 5 percent. What is the amount that he will have to save every year to reach his goal of $8,100 in three years

Answer 1

Annual deposit= $2,560.39

Step-by-step explanation:

Giving the following information:

Future value= $8,100

Number of periods= 3 years

Interest rate= 5%

To calculate the annual deposit (annual saving), we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (8,100*0.05) / [(1.05^3) - 1]

A= $2,560.39