Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
A) $1,862
B) $2,457
C) $3,000
D) $2,234

Question

Quizplus · Accepted Answer

Using the formula:

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

Where: 
FV = Future Value (amount needed in 5 years) = $15,000 
PMT = Annual deposit 
i = Interest rate per year = 0.10 
n = Number of years = 5

Substituting the given values:

$15,000 = PMT x [(1 + 0.10)^5 - 1] / 0.10

$15,000 = PMT x 7.721

PMT = $15,000 / 7.721

PMT = $1,941.84 (rounded to the nearest cent)

Therefore, Janice must deposit approximately $2,457 annually to accumulate $15,000 in 5 years at 10 percent interest.

The closest answer option is B, $2,457.

Colin Would Like to Send Her Parents on a Cruise