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Computing the Present and Future Values of an Annuity

Please help, I do not understand...

Stephen Bosworth, a super salesman contemplating retirement on his 55th birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30th, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30th of each of the years 2010-2013.

Instructions

a.) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective?

b.) What are each of Stephen's contributions to the fund?

Solution Preview

The withdrawals form an annuity (i.e., a stream of periodic payments of a set amount at a set interest rate for a certain number of years). Because the payments are made at the end of each year (i.e., ...

Solution Summary

Stephen Bosworth, a super salesman contemplating retirement on his 55th birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30th, beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make equal contributions on June 30th of each of the years 2010-2013.

Instructions

a.) How much must the balance of the fund equal on June 30, 2013, in order for Stephen Bosworth to satisfy his objective?

b.) What are each of Stephen's contributions to the fund?

$2.19