Question 1149087: We want $5000 in 9 years. How much do we deposit each quarter in an account earning 8% interest compounded quarterly?
Found 2 solutions by ikleyn, MathTherapy:
Answer by ikleyn(52817)   (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 factual quarterly rate 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 the quarterly payment
P =  . (1)
Under the given conditions, FV = $5,000; r = 0.08/4; n = 9*4. So, according to the formula (1),
you get for the quarterly payment
P =  = $96.16.
Answer. The necessary quarterly deposit value is $96.16.
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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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I edited my post after the notice by tutor @MathTherapy.
Now you see the corrected modified version.
Thanks to tutor @MathTherapy.
Answer by MathTherapy(10555)  (Show Source):
You can put this solution on YOUR website! We want $5000 in 9 years. How much do we deposit each quarter in an account earning 8% interest compounded quarterly?
Tutor IKLEYN made a mistake. This amount will be compounded QUARTERLY, not monthly. Hence, the 12 in her calculation should be 4 instead.
As a result, the correct amount to deposit each quarter will be:  .
This amount was reduced to the nearest cent, to 2 decimal places, or to the nearest hundredth.
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