A small foundry agrees to pay $250,000 two years from now to a supplier for a given amount of coking coal.The foundry plans to deposit a fixed amount in a bank account every three months,starting three months from now,so that at the end of two years the account holds $250,000.If the account pays 5.5% APR compounded monthly,how much must be deposited every three months?
A)$29,770
B)$29,777
C)$29,740
D)$31,250
E)$28,077

Question

Quizplus · Accepted Answer

The correct answer is A because the future value of the annuity is $250,000, the interest rate is 5.5% APR compounded monthly, and the number of compounding periods is 8. The monthly deposit can be calculated using the formula:PMT = FV * (r / (1 - (1 + r)^-n))where:PMT is the monthly depositFV is the future value of the annuityr is the monthly interest raten is the number of compounding periodsSubstituting the given values into the formula, we get:PMT = 250,000 * (0.055 / (1 - (1 + 0.055/12)^-8))PMT = 29,770.01Therefore, the foundry must deposit $29,770 every three months.

A Small Foundry Agrees to Pay $250,000 Two Years from Now