[Daisy2]

How do I work this problem? Any help would be appreciated!

Henson Company wishes to accumulate $500,000 by May 1, 2012 by making 8 equal annual deposits beginning May 1, 2004 to fund paying 8% interest compounded annually. What is the required amount of each deposit?

a) $87,008
b) $47,007
c) $43,525
d) $50,390

[KongTheKonqueror]

B) $47,007

[dmatos]

This site is more useful if you help someone to determine the correct answer, rather than just providing it. Daisy, you should be able to find in your economics book some equations for determining the final value after N years of annual deposits of X dollars at I interest rate. If not, 8 years is short enough that you can work it out manually:

First year's value at the end of the term:
X*(1+I)^8
Second year's value at the end of the term:
X*(1+I)^7
and so on. You know I, and you know what the sum of all of them should be.

X*[(1+I)^8+(1+I)^7+.. . (1+I)^1] = 500,000

Solve for X

[KongTheKonqueror]

There isn't a whole lot to explain. Just enter the figures into a TVM calculator and it will spit out the answer. Periods=8, Future Value=500,000, Present Value=0, Interest=%8, calculate for payment.