Solve the problem.
-Suppose you contribute to a fund that earns 5.5% annual interest. What should your quarterly payment be if you want to accumulate $190,000 in 18 years?
A) $1873.72
B) $12,491.45
C) $1561.43
D) $2342.15

Question

Quizplus · Accepted Answer

To solve this, we use the formula for the future value of an annuity, which is FV = P * [((1 + r)^nt - 1) / r], where FV is the future value ($190,000), P is the quarterly payment we're solving for, r is the quarterly interest rate (5.5% annual rate divided by 4, so 0.055/4), n is the number of times the interest is compounded per year (4, since it's quarterly), and t is the time in years (18). Rearranging the formula to solve for P gives us P = FV / [((1 + r)^nt - 1) / r]. Plugging in the numbers gives us the correct quarterly payment to reach the desired future value.

Solve the Problem. -Suppose You Contribute to a Fund That Earns 5.5% Annual