Question

What is the amount of the payments that Ned Winslow must make at the end of each of 8 years to accumulate a fund of $90,000 by the end of the 8th year, if the fund earns 8% interest, compounded annually

Answer 1

Answer:

Amount to be paid annually by Ned Winslow = $8461.35

Explanation:

Fv = A ( 1 + r)∧n  - 1

              r

90,000   =   A  ( 1 + 0.08)∧8  - 1

                         0.08

90,000 =   A ( 1.8509 - 1)

                       0.08

90,000  =   10.6366A

A =     90,000/10.6366

=   $8,461.35

Answer 2

Answer:

The amount is $8,461.33

Explanation:

Using the formula future value for an annuity:

FV = Annuity * Interest factor

From the scenario under study, we are basically looking for our annuity - a specific payments made at constant intervals.

It is thus believed that the annuity will be sustained to build up a fund of $90,000. This thus represents our Future Value of an annuity.

Using the formula so enlisted:

Remember, our interest is 8% compounded annually. It is important to obtain our interest factor using the annuity table.

From the annuity table, our interest factor is 10.63663

Hence, FV = n * interest factor

90,000 = n * 10.63663

N = 90,000/10.63663

N = $8,461.326 (where N represents the annuity)