Nukin' Gnats Pest Control wants to offer a contract to its customers that would protect the property of their existing customers against termite infestation. Should termites invade a customer's home, Nukin' Gnats will pay for the repairs to the home provided the customer has maintained service with Nukin' Gnats. The corporation must develop an account with a value of $500,000. They will accumulate this account over three years, after which they will offer this new contract provision. How much must be deposited annually (rounded amount) to accumulate the needed funds if they can get 5% interest at their local bank?
A) $275,026
B) $158,604
C) $80,255
D) $97,985

Question

Quizplus · Accepted Answer

To accumulate $500,000 in three years with 5% interest, Nukin' Gnats Pest Control would need to deposit approximately $158,604 annually. This can be calculated using the formula for future value of an annuity:

FV = PMT x [((1 + r)^n - 1)/r]

Where:
PMT = Payment (unknown)
r = Interest rate = 0.05
n = Number of periods = 3

Substituting the given values:

$500,000 = PMT x [((1 + 0.05)^3 - 1)/0.05]

Solving for PMT, we get:

PMT = $158,604.15 (rounded to nearest dollar)

Nukin' Gnats Pest Control Wants to Offer a Contract to Its