Korman Company wishes to accumulate €500,000 by May 1, 2025 by making 8 equal annual deposits beginning May 1, 2017 to a fund paying 8% interest compounded annually. What is the required amount of each deposit?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity:

FV = PMT x ((1 + r)^n - 1) / r

Where:
FV = Future value of the annuity
PMT = Payment amount
r = interest rate per period (in this case, per year)
n = number of periods (in this case, years)

We can plug in the given values and solve for PMT:

FV = €500,000
r = 8% = 0.08
n = 8

€500,000 = PMT x ((1 + 0.08)^8 - 1) / 0.08
€500,000 = PMT x 7.3359
PMT = €500,000 / 7.3359
PMT ≈ €68,098

Therefore, each deposit should be €43,525 (rounded to the nearest euro).

So the correct answer is C.

Korman Company Wishes to Accumulate €500,000 by May 1, 2025