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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

REACHING A FINANCIAL GOAL Six years from today you need $10,000. You plan to deposit $1,500 annually, with the first payment to be made a year from today, in an account that pays an 8% effective annual rate. Your last deposit, which will occur at the end of Year 6, will be for less than $1,500 if less is needed to reach $10,000. How large will your last payment be?

Summary Introduction

To calculate: Value of deposit to reach the financial goal of $10,000 in six years at 8% annual effective rate with 6th year deposit to be less than $1500.

Present value of cash flow: It is also called as discounted value; it defines that amount of money that invested at a given rate of interest will increase the amount of future cash flow at that particular time in future.

Explanation

Solution:

Calculation is done in spread sheet

Table (1)

The value of investment up to five years is $8,703

Calculation of the amount to be deposited in the sixth year

Given,

Amount required $10,000

Future Value $8,703

Formula to calculate amount require to deposit in sixth year is,

Sixthyeardeposit=Amountrequired

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