A couple wishes to save for a down payment of $50,000 on a house.They deposit money at the end of every 3 months for 4 years into a sinking fund to achieve their goal.If the sinking fund earns interest at j₁₂ = 6%,what quarterly deposit does the couple need to make?

Question

Quizplus · Accepted Answer

We can use the formula for sinking funds:

PV = (PMT/i) x (1 - (1 + i)^(-n))

Where:
PV = present value (the amount we want to save)
PMT = the periodic payment
i = interest rate per period (in this case, quarterly)
n = total number of periods

Plugging in the given values, we get:

$50,000 = (PMT/0.06) x (1 - (1 + 0.06/4)^(-4x4))

Solving for PMT, we get:

PMT = $2,786.64

Therefore, the couple needs to make quarterly deposits of $2,786.64 to achieve their goal of saving $50,000 for a down payment on a house. The correct answer is A).

A Couple Wishes to Save for a Down Payment of $50,000