Sue Gray wants to invest a certain sum of money at the end of each year for five years. The investment will earn 6% compounded annually. At the end of five years, she will need a total of $40,000 accumulated. How should she compute her required annual invest-ment?
A) $40,000 times the future value of a 5-year, 6% ordinary annuity of 1.
B) $40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1.
C) $40,000 times the present value of a 5-year, 6% ordinary annuity of 1.
D) $40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1.

Question

Quizplus · Accepted Answer

To find the required annual investment to accumulate a future sum, you divide the future sum by the future value of an ordinary annuity factor. This gives you the annual amount needed to invest to reach the desired future value, considering the interest rate and time period.

Sue Gray Wants to Invest a Certain Sum of Money