Viviana Carroll needs to have $25,000 in five years. If she can earn 8 percent annually on any investment, what is the amount that she will have to invest every year at the end of each year for the next five years? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To calculate the amount Viviana needs to invest each year, the future value of an annuity formula can be used:

FV = PMT x ((1 + r)^n - 1) / r

Where
FV = future value
PMT = payment amount
r = annual interest rate
n = number of payment periods

In this case, Viviana wants to have $25,000 in 5 years and can earn 8% annually. So,

FV = $25,000
r = 8%
n = 5

Using the formula and solving for PMT, we get:

PMT = FV x r / ((1 + r)^n - 1)

PMT = $25,000 x 8% / ((1 + 8%)^5 - 1)

PMT = $25,000 x 0.08 / 0.469327

PMT = $4,261.07

Therefore, Viviana needs to invest $4,261 (rounded to the nearest dollar) at the end of each year for the next five years to reach her goal of $25,000. Choice B is the best option.

Viviana Carroll Needs to Have $25,000 in Five Years