Christian plans to initially contribute $3,000 and increase his yearly contributions by 5% each year for 20 years. If the rate of interest is 7% compounded annually, determine the amount of his payment in year 12.

Question

Quizplus · Accepted Answer

The correct answer is A.The amount of his payment in year 12 is $5,387.56.The formula for the future value of an annuity is:FV = P * [(1 + r)^n - 1] / rwhere:* FV is the future value of the annuity* P is the annual payment* r is the annual interest rate* n is the number of yearsIn this case, we have:* P = $3,000* r = 7%* n = 20So, the future value of the annuity is:FV = $3,000 * [(1 + 0.07)^20 - 1] / 0.07 = $86,206.56The amount of his payment in year 12 is:$86,206.56 / (1 + 0.07)^12 = $5,387.56

Christian Plans to Initially Contribute $3,000 and Increase His Yearly