Your ﬁrm wants to save £250,000 to buy some new equipment three years from now.The plan is to set aside an equal amount of money on the ﬁrst day of each year starting today.The ﬁrm can earn a 4.7% rate of return.How much does the ﬁrm have to save each year to achieve its goal?

Question

Quizplus · Accepted Answer

The firm needs to use the formula for the future value of an annuity to determine how much to save each year. The formula is FV = P * [(1 + r)^n - 1] / r, where FV is the future value (£250,000), P is the annual payment, r is the annual interest rate (4.7% or 0.047), and n is the number of years (3). Rearranging the formula to solve for P gives P = FV / [(1 + r)^n - 1] / r. Plugging in the values gives P = £250,000 / [(1 + 0.047)^3 - 1] / 0.047, which calculates to approximately £75,966.14.

Your ﬁRm Wants to Save £250,000 to Buy Some New