Question 1194507
.
At the end of each year for 8 years, a corporation will deposit $12,500 in a depreciation fund 
to provide for replacement of machinery at the end of 8 years. If the fund accumulates 
at 8% effective, how much is in it just after the: 
(a) last deposit; 
(b) 5th deposit?
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<pre>
It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = {{{P*(((1+r)^n-1)/r)}}},    (1)


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


(a)  Under given conditions, P = 12500;  r = 0.08;  n = 8.  So, according to the formula (1), 
Future value at the end of the 8-th year


    FV = {{{12500*(((1+0.08)^8-1)/0.08)}}} = $132,957.85  (rounded).


It is the <U>ANSWER</U> to question (a).



(b)  This time, P = 12500;  r = 0.08;  n = 5.  So, according to the formula (1), 
Future value at the end of the 5-th year


    FV = {{{12500*(((1+0.08)^5-1)/0.08)}}} = $73,332.51  (rounded).


It is the <U>ANSWER</U> to question (b).

</pre>

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On Ordinary Annuity saving plans, &nbsp;see the lessons

&nbsp;&nbsp;&nbsp;&nbsp;- <A HREF=http://www.algebra.com/algebra/homework/Sequences-and-series/Ordinary-Annuity-saving-plans-and-geometric-progressions.lesson>Ordinary Annuity saving plans and geometric progressions</A>

&nbsp;&nbsp;&nbsp;&nbsp;- <A HREF=https://www.algebra.com/algebra/homework/Sequences-and-series/Solved-problem-on-Ordinary-Annuity-saving-plans.lesson>Solved problems on Ordinary Annuity saving plans</A>

in this site.


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