Fenland Co. plans to retire $100 million in bonds in five years, so it wishes to fund a savings account at the beginning of each year during that period for which it expects to earn 8% annually. At the end of the five years, there will be enough money in the account to pay off the bonds. What amount does Fenland need to invest each year?
A) $15,783,077.
B) $17,045,650.
C) $23,190,400.
D) Cannot be determined from the given information.

Question

Quizplus · Accepted Answer

This is the amount in the future value of an annuity due formula, where $100 million = investment amount × factor from Table 5 where n = 5 and i = 8%. Thus, Investment amount = $100 million ÷ 6.3359 = $15,783,077.