Nu-Tools plans to set aside an equal amount of money each year,starting today,so that it will have $25,000 saved at the end of three years.If the firm can earn 4.7 percent,how much does it have to save annually?

Question

Quizplus · Accepted Answer

The firm needs to calculate the annual savings required to reach $25,000 in three years at an interest rate of 4.7%. This is an annuity problem where the future value (FV) is known, and we need to find the annuity payment (PMT). The formula for the future value of an annuity is FV = PMT * [(1 + r)^n - 1] / r, where r is the interest rate per period, n is the number of periods, and PMT is the annuity payment. Rearranging the formula to solve for PMT gives PMT = FV / [(1 + r)^n - 1] / r. Plugging in the values (FV = $25,000, r = 0.047, n = 3) gives PMT = $7,596.61.

Nu-Tools Plans to Set Aside an Equal Amount of Money