Question

Find the site of each of 7 payments made at the end of coch Year into an 8% rare sinking tond which produces $46,000 at the -od of 7 years

Answer 1

Using Annuity formula for a target future value, Number of years to maturity Equal annual deposits required = Future value x Interest rate / ([1 + Interest rate] Num 11 $46,000 8% Future value Interest rate Number of years to maturity Equal annual deposits required $5,155.33 ($46,000 x 8% / ([1 + 8%] - 1) = $3,680 / (1.08° - 1) = $5,155.33]

Alternatively, using EXCEL FUNCTION PMT(), 8% 7 $0 Annual Interest rate, RATE # of annual deposits required, NPER Initial investment amount, PV Target maturity amount at the end, FV Annual installment type, TYPE Equal annual deposits required $46,000 0 = 0 if installments paid at the end of each year; 1 if installments paid at the beginning of each year $5,155.33 [Ref: NOTE] NOTE: 8% Equal annual deposits required is calculated using EXCEL FUNCTION PMT(rate,nper,pv,fv, type) where rate=8%; nper=7; pv=0; fv=-46000; type=0; Here, fv is negative as it denotes cash inflow; type=0 as installments are paid at the end of each year only. В B C D E F G H I 1 Annual Interest rate, RATE 2 # of annual deposits required, NPER 7 3 Initial investment amount, PV 4 Target maturity amount at the end, FV $46,000 5 Annual installment type, TYPE 0 = 0 if installments paid at the end of each year; 1 if installments paid at the beginning of each year 6 Equal annual deposits required =PMT(B1,B2,B3,-B4,B5) [Ref: NOTE]