Question

Sara has just graduated from college. she has determined that to purchase a home in 11 years she needs to accumulate $45,800 for a down payment. if sara can earn 5% per year on her savings, what is the amount of the annual annuity payment that sara must make at the end of each year for 11 years?

Answer 1

Annual annuity payment = $3,223.81

Step-by-step explanation:

She will need to make as deposit every an amount which is to determined as follows:

Annual deposit = FV/Annuity factor

Annuity factor = ( (1+r)^n - 1) - 1)/r

FV = 45,800, n = 11, r = 5%

We can work this out following the steps below:

Step 1

calculate annuity factor

Annuity factor = ((1+ 0.05)^(11) -1)/0.05

= 14.2067

Step 2

Calculate annual annuity payment

Annuity payment = 45,800/14.2067

= $3,223.81

Annual annuity payment = $3,223.81