Question:
John Rider wants to accumulate $100,000 to be used for his daughter’s college education. He would like
to have the amount available on December 31, 2018. Assume that the funds will accumulate in a
certificate of deposit paying 8% interest compounded annually.
Required:
Answer each of the following independent questions.
1. If John were to deposit a single amount, how much would he have to invest on December 31, 2013?
2. If John were to make five equal deposits on each December 31, beginning on December 31, 2014, what
is the required amount of each deposit?
3. If John were to make five equal deposits on each December 31, beginning on December 31, 2013, what
is the required amount of each deposit?
Answer:
Requirement 1
PV = $100,000 (.68058) = $68,058
Present value of $1: n = 5, i = 8% (from Table 2)
Requirement 2
Annuity amount = $100,000
5.8666
Future value of an ordinary annuity of $1: n = 5, i = 8% (from Table 3)
Annuity amount = $17,046
Requirement 3
Annuity amount = $100,000
6.3359
John Rider wants to accumulate $100,000 to be used for his daughter’s college education. He would like
to have the amount available on December 31, 2018. Assume that the funds will accumulate in a
certificate of deposit paying 8% interest compounded annually.
Required:
Answer each of the following independent questions.
1. If John were to deposit a single amount, how much would he have to invest on December 31, 2013?
2. If John were to make five equal deposits on each December 31, beginning on December 31, 2014, what
is the required amount of each deposit?
3. If John were to make five equal deposits on each December 31, beginning on December 31, 2013, what
is the required amount of each deposit?
Answer:
Requirement 1
PV = $100,000 (.68058) = $68,058
Present value of $1: n = 5, i = 8% (from Table 2)
Requirement 2
Annuity amount = $100,000
5.8666
Future value of an ordinary annuity of $1: n = 5, i = 8% (from Table 3)
Annuity amount = $17,046
Requirement 3
Annuity amount = $100,000
6.3359
