Your company must make payments of R100,000 each year for 10 years, with the first payment to be made 10 years from today.To prepare for these payments, your company must make 10 equal annual deposits into an account which pays a simple interest rate of 7 percent, daily compounding (360-day year).Funds will remain in the account during both the accumulation period (the first 10 years) and the distribution period (the last 10 years), and the same interest rate will be earned throughout the entire 20 years.The first deposit will be made immediately.How large must each deposit be?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity due, we can calculate the required equal annual deposits:
PV = 0 (since the first deposit is made immediately)
FV = R100,000 * 10 = R1,000,000
PMT = ?
i = 7%/360 = 0.0194 (daily rate)
n = 10 * 360 = 3,600 (number of days in accumulation period)
PMT = (FV / ((1 + i) ^ n - 1)) * (1 + i)
PMT = (R1,000,000 / ((1 + 0.0194) ^ 3600 - 1)) * (1 + 0.0194)
PMT = R49,661.86, rounded to the nearest cent.

Therefore, the answer is B) R49,661.86.

Your Company Must Make Payments of R100,000 Each Year for 10