SOLUTION: You would like to have $6,000.00 in 7 years for a special vacation following graduation by making deposits at the end of each year in an annuity that pays 4% compounded annually.

Question 1137936: You would like to have $6,000.00 in 7 years for a special vacation following graduation by making deposits at the end of each year in an annuity that pays 4% compounded annually.

How much money should you deposit at the end of every year?

How much of the $6,000.00 comes from deposits and how much comes from interest?
Answer by ikleyn(52790) (Show Source): You can put this solution on YOUR website!
.


It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = ,   


where  FV is the future value of the account;  P is annual payment (deposit); r is the annual percentage yield presented as a decimal; 
n is the number of deposits (= the number of years, in this case).


From this formula, you get for for the annual payment 


    P = .     (1)


Under the given conditions, FV = $6,000;  r = 0.04;  n = 7.  So, according to the formula (1), you get for the annual payment 


    P =  = $759.66.


Answer.  The necessary annual deposit value is $759.66.



Of the $6000, only 7*759.66 = 5317.62 dollars comes from deposit.


The rest 6000.00 - 5317.62 = 682.38 dollars comes from interest.

---------

On Ordinary Annuity saving plans, see the lessons
- Ordinary Annuity saving plans and geometric progressions
- Solved problems on Ordinary Annuity saving plans
in this site.

The lessons contain EVERYTHING you need to know about this subject, in clear and compact form.

When you learn from these lessons, you will be able to do similar calculations in semi-automatic mode.

RELATED QUESTIONS
You would like to have $9000.00 in 8 years for a special vacation following graduation by (answered by ikleyn)

This is the word problem I am having problems with. You would like to have $4000 in... (answered by stanbon)

You would like to have $41,000 in 5 years for the down payment on a new house following... (answered by ikleyn)

Ms. Ucalili wants to accumulate P20,000 by the end of 3 years to buy an iPod from her... (answered by Theo)

Mary and Joe would like to save up $10,000 by the end of three years from now to buy new... (answered by Theo)

A person wants to deposit $10,000 per year for 6 years. If interest is earned at the rate (answered by Theo)

A person wants to deposit $10,000 per year for 6 years. If interest is earned at the... (answered by CPhill)