Brief Exercise 6: Madison Needs $328,500 In 10 Years

Brief Exercise 6 6steve Madison Needs 328500in10years Use The T

Steve Madison needs $328,500 in 10 years. Use the tables below to determine how much he must invest at the end of each year, at 12% interest, to meet his goal. Round factor values to 5 decimal places and final answers to 0 decimal places.

Calculate the annual investment amount required for Madison to accumulate $328,500 in 10 years with yearly end-of-period contributions.

Paper For Above instruction

To solve the problem of determining the required annual investment Madison must make to accumulate $328,500 over 10 years at an annual interest rate of 12%, we employ the concept of future value of an ordinary annuity. This financial calculation assumes equal contributions made at the end of each period, compounded at a given interest rate.

The formula for the future value (FV) of an ordinary annuity is:

FV = P * ( ( (1 + r)^n - 1 ) / r )

Where:

  • FV = future value ($328,500)
  • P = annual payment (what we need to calculate)
  • r = interest rate per period (12% or 0.12)
  • n = number of periods (10 years)

Rearranged to find P:

P = FV / ( ( (1 + r)^n - 1 ) / r )

Using the appropriate table, the factor ( ( (1 + r)^n - 1 ) / r ) at 12% interest over 10 years is approximately 9.81348.

Therefore:

P = 328,500 / 9.81348 ≈ $33,470

Thus, Steve Madison must invest approximately $33,470 at the end of each year to meet his financial goal, rounded to the nearest dollar.

References

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