Janice would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?

Question

Quizplus · Accepted Answer

We can use the future value formula for an ordinary annuity:

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

where PMT is the annual deposit, i is the interest rate (10% or 0.1), and n is the number of years (5).

Plugging in the numbers, we get:

$15,000 = (PMT x ((1+0.1)^5 - 1) / 0.1)

$15,000 = (PMT x 6.1051)

PMT = $15,000 / 6.1051

PMT = $2,456.88, which rounded to the nearest dollar is $2,457.

Therefore, Janice must deposit $2,457 annually in an account paying 10% interest to have enough money to send her parents on the cruise. Answer B is the best choice.

Janice Would Like to Send Her Parents on a Cruise