Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over the next 20 years. If he can earn 10 percent on his investments, how much must he deposit at the end of each year?
A) $14,900
B) $50,000
C) $117,453
D) $17,460

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the future value of an annuity: FV = P * [((1 + r)^n - 1) / r], where FV is the future value ($1 million), P is the annual payment, r is the annual interest rate (10% or 0.10), and n is the number of payments (20 years). Rearranging the formula to solve for P gives P = FV / [((1 + r)^n - 1) / r]. Plugging in the numbers: P = $1,000,000 / [((1 + 0.10)^20 - 1) / 0.10] = $17,460 (approximately).

Lee Wishes to Accumulate $1 Million by Making Equal Annual