SOLUTION: Suppose a company wants to have R450 000 after 2,5 years to modernise it's production equipment. How much if each previous quarter's profit should be deposited at the beginning of

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Question 1139090: Suppose a company wants to have R450 000 after 2,5 years to modernise it's production equipment. How much if each previous quarter's profit should be deposited at the beginning of the current quarter to reach this goal, if the company investment earns 6,8% p.a. compounded quarterly?
Answer by ikleyn(52781)   (Show Source): You can put this solution on YOUR website!
.
It is a classic Annuity Due saving plan. The general formula is 


    FV = ,    


where  FV is the future value of the account;  P is the deposit at the beginning of each payment period (quarter, in this case) ; 
r is the quarterly percentage yield presented as a decimal; n is the number of deposits (= the number of the quarter periods, in this case).


2.5 years = 10 quarters.


From this formula, you get for for the monthly payment 


    P = .     (1)


Under the given conditions, FV = $450,000;  r = 0.04/12;  n = 10.  So, according to the formula (1), you get for the monthly payment 


    P =  = $40967.39.


Answer.  The necessary quarterly deposit value is $40967.39.

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


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