You borrowed $50, 000 which you must repay in 10 years.You plan to make an initial deposit today, then make 9 more deposits at the beginning of each the next 9 years, but with the deposits increasing at the inflation rate.You expect to earn 5% on your funds, and you expect a 3% inflation rate.To the nearest dollar, how large must your initial deposit be to enable you to reach your $50, 000 target?

Question

Quizplus · Accepted Answer

We can set up a table with an arbitrary initial deposit that grows at the inflation rate and is then compounded at the nominal rate for (N - t)years.The sum of the compounded amounts should total to $50, 000.With an arbitrary initial amount the ending amount is not likely to be $50, 000, so we use goal seek as shown in the completed dialog box to find the correct initial depositrue.Inputs:
 11ea1b84_8b8e_199e_a54a_0bdd1f28ee95_TB3581_00 11ea1b84_8b8e_40af_a54a_abac282416cd_TB3581_00

You Borrowed $50, 000 Which You Must Repay in 10