Sara has just graduated from college. she has determined that to purchase a home in 11 years she needs to accumulate $45,800 for a down payment. if sara can earn 5% per year on her savings, what is the amount of the annual annuity payment that sara must make at the end of each year for 11 years?

Question

Business

Nadia Farley

21 October, 06:58

Sara has just graduated from college. she has determined that to purchase a home in 11 years she needs to accumulate $45,800 for a down payment. if sara can earn 5% per year on her savings, what is the amount of the annual annuity payment that sara must make at the end of each year for 11 years?

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Answers (1)

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Korbin Valdez · Answer 1

Annual annuity payment = $3,223.81

Explanation:

She will need to make as deposit every an amount which is to determined as follows:

Annual deposit = FV/Annuity factor

Annuity factor = ((1+r) ^n - 1) - 1) / r

FV = 45,800, n = 11, r = 5%

We can work this out following the steps below:

Step 1

calculate annuity factor

Annuity factor = ((1 + 0.05) ^ (11) - 1) / 0.05

= 14.2067

Step 2

Calculate annual annuity payment

Annuity payment = 45,800/14.2067

= $3,223.81

Annual annuity payment = $3,223.81