Xiao Li wishes to accumulate $50,000 by the end of 10 years by making equal annual end-of-year deposits over the next 10 years. If Xiao Li can earn 5 percent on her investments, how much must she deposit at the end of each year?
A) $3,975
B) $6,475
C) $5,000
D) $4,513

Question

Quizplus · Accepted Answer

The future value of an annuity is given by the formula:FV = PMT * [(1 + r)^n - 1] / rwhere:PMT is the annual paymentr is the annual interest raten is the number of yearsIn this case, we have:FV = $50,000r = 5% = 0.05n = 10 yearsSubstituting these values into the formula, we get:$50,000 = PMT * [(1 + 0.05)^10 - 1] / 0.05$50,000 = PMT * 6.475PMT = $50,000 / 6.475PMT = $3,975Therefore, Xiao Li must deposit $3,975 at the end of each year to accumulate $50,000 by the end of 10 years.

Xiao Li Wishes to Accumulate $50,000 by the End of 10