Question

Sue would like to save up for a down payment on a home she hopes to purchase in 5 years. If she wishes to have $20,000 saved up at the end of five years and can earn 3.5% annually in her savings account. If she would like to make equal annual deposits, what amount will her deposits need to be in order to reach her goal

Answer 1

Annual deposit= $3,729.63

Step-by-step explanation:

Giving the following information:

Future value (FV)= $20,000

Number of periods (n)= 5 years

Interest rate (i)= 3.5% = 0.035

To calculate the annual deposit, 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= (20,000*0.035) / [(1.035^5) - 1]

A= $3,729.63