The company deposits $208,000 on December 31, 2020, which will earn interest at 12% compounded quarterly, to help in the retirement of this debt

Accounting Nov 05, 2020

The company deposits $208,000 on December 31, 2020, which will earn interest at 12% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,352,000 is available at the end of 2030. (The quarterly deposits will also earn at a rate of 12%, compounded quarterly.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Annuity of value of quarterly deposits

Expert Solution

Solution:

Future value of initial deposit = $208,000 * (1 + 0.03) ^ 40 = $208,000 * 3.26204 = $678,504

Required future value of quarterly deposits = $1,352,000 - $678,504 = $673,496

Required quarterly deposits = $673,496 / Cumulative FV factor at 3% for 40 periods

= $673,496 / 75.40126

= $8,932

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