Question

You need to accumulate $10,000. To do so, you plan to make deposits of $1,750 per year - with the first payment being made a year from today - into a bank account that pays 11.46% annual interest. Your last deposit will be less than $1,750 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number. year(s) How large will the last deposit be? Round your answer to the nearest cent. $

Answer 1

To calculate the years to reach 10,000, we can use nper function in excel:

=nper(rate,pmt,pv,fv)

=NPER(11.46%,-1750,0,10000)

=4.64 years

As it takes somewhere between 4 and 5 years to accumulate 10,000, last deposit will not be 1750, to calculate this we have to calculate FV of money at year 4 and year 5.

FV after 4 years =FV(11.46%,4,-1750) = 8,297.87

FV for next year is 8297.87(1+0.1146) = 9,248.80

Last payment shall be equal to = 10,000 - 9,248.80 = 751.20

It will take 5 years to reach the goal, last deposit will be 751.20.