Marshall, Inc. wishes to accumulate $500,000 to be used to pay off a loan at the end of 10 years. How much will Marshall deposit each year for 10 years, beginning at the end of the first year, to accumulate the desired amount if the investment earns an annual rate of 12%? (Select the closest amount)
A) $22,793
B) $28,492
C) $16,667
D) $13,216

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the future value of an annuity, which is FV = P * [(1 + r)^n - 1] / r, where FV is the future value ($500,000), P is the annual payment, r is the annual interest rate (12% or 0.12), and n is the number of periods (10 years). Rearranging the formula to solve for P gives us P = FV / [(1 + r)^n - 1] / r. Plugging in the numbers gives us P = $500,000 / [(1 + 0.12)^10 - 1] / 0.12, which calculates to approximately $28,492.