Problem

Susan wants to save money to buy a motorcycle. She invests in an ordinary annuity that earns 4.8% interest, compounded quarterly. Payments will be made at the end of each quarter.

How much money will she need to pay into the annuity each quarter for the annuity to have a total value of $7000 after 6 years?

Answer

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Answer

Final Answer: Susan will need to pay approximately $253.41 into the annuity each quarter for the annuity to have a total value of $7000 after 6 years. So, the final answer is 253.41.

Steps

Step 1 :Susan wants to save money to buy a motorcycle. She invests in an ordinary annuity that earns 4.8% interest, compounded quarterly. Payments will be made at the end of each quarter. She wants the annuity to have a total value of $7000 after 6 years.

Step 2 :We need to find out how much money she will need to pay into the annuity each quarter.

Step 3 :We can use the formula for the future value of an ordinary annuity: FV=P×(1+r/n)n×t1r/n, where FV is the future value, P is the payment made each period, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

Step 4 :We can rearrange this formula to solve for P: P=FV×r/n(1+r/n)n×t1.

Step 5 :Substituting the given values into the formula, we get: P=7000×0.048/4(1+0.048/4)4×61.

Step 6 :Solving this equation, we find that P253.41.

Step 7 :Final Answer: Susan will need to pay approximately $253.41 into the annuity each quarter for the annuity to have a total value of $7000 after 6 years. So, the final answer is 253.41.

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