Question

A sinking fund is established by a working couple so that they will have $60,000 to pay for part of their daughter's education when she enters college. If they make deposits at the end of each 3-month period for 8 years, and if interest is paid at 10%, compounded quarterly, what size deposits must they make

Answer 1

quarterly deposit= $12,460.99

Step-by-step explanation:

Giving the following information:

FV= $60,000

Number of periods= 4*8= 32

i= 0.10/4= 0.025

To calculate the quarterly deposit required, we need to use the following formula:

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

A= quarterly deposit

Isolating A:

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

A= (60,000*0.025) / [(1.025^32) - 1]

A= 12,460.99