Question 1127932: A condominium association decided to set up a sinking fund to accumulate $80,000 by the end of 5 years to build a new sauna and swimming pool. What quarterly deposits are required if the annual interest rate is 6.2% and it is compounded quarterly? (Round your final answer to two decimal places.)
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Answer by ikleyn(52788)   (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 the quarterly payment (deposit); r is the quarterly percentage yield presented as a decimal;
n is the number of deposits (= the number of years multiplied by 4, in this case).
From this formula, you get for for the quarterly payment
P =  . (1)
Under the given conditions, FV = $80,000; r = 0.062/4; n = 5*4. So, according to the formula (1), you get for the quartely payment
P =  = $3442.66.
Answer. The necessary quarterly deposit value is $3442.66.
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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.
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