Xiao Xin is planning to accumulate $40,000 by the end of 5 years by making 5 equal annual deposits. If she plans to make her first deposit today and can earn an annual compound rate of 9 percent on her investment, how much must each deposit be in order to accumulate the $40,000?
A) $ 6,132
B) $ 6,684
C) $23,844
D) $ 9,434

Question

Quizplus · Accepted Answer

Using the formula for the future value of an annuity:
FV=Pmt[(1+r)^n-1]/r
where
FV= future value
Pmt= periodic payment
r= annual interest rate
n= number of periods

Substituting the given values:
$40,000=Pmt[(1+0.09)^5-1]/0.09

Solving for Pmt:
Pmt=$6,684.18, which is closest to choice B.

Xiao Xin Is Planning to Accumulate $40,000 by the End