How much must be deposited on January 1, 2014 in a savings account paying 6% annually in order to make annual withdrawals of $30,000 at the end of the years 2014 and 2015? The present value of one at 6% for one period is .9434.
A) $55,002
B) $56,610
C) $60,000
D) $26,700

Question

Quizplus · Accepted Answer

To find the amount to be deposited, calculate the present value of the withdrawals. The present value of $30,000 at the end of 2014 is $30,000 * 0.9434 = $28,302. The present value of $30,000 at the end of 2015 is $30,000 * 0.9434^2 = $26,700. Adding these gives $28,302 + $26,700 = $55,002.

How Much Must Be Deposited on January 1, 2014 in a Savings