How much must be deposited on January 1, 2018 in a savings account paying 6% annually in order to make annual withdrawals of €25,000 at the end of the years 2018 and 2019? The present value of one at 6% for one period is .9434.

Question

Quizplus · Accepted Answer

To find the amount to be deposited, calculate the present value of the withdrawals. The present value of €25,000 at the end of 2018 is €25,000 * 0.9434 = €23,585. The present value of €25,000 at the end of 2019 is €25,000 * 0.9434^2 = €23,585 * 0.9434 = €22,250. Adding these gives €45,835.

How Much Must Be Deposited on January 1, 2018 in a Savings