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Homework answers / question archive / Assume that, starting next year, you will make deposits of $744 each year into a savings account

Assume that, starting next year, you will make deposits of $744 each year into a savings account

Finance

Assume that, starting next year, you will make deposits of $744 each year into a savings account. You will make a total of 6 annual deposits. If the savings account interest rate is 11%, what is the present value of this savings plan?

Assume that you wish to make annual deposits into a savings account. The interest rate offered by the bank is 6%, and you plan to save for the next 8 years. If your goal is for the present value of your savings to be equal to $2,771, how much money must you deposit every year?

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Computation of Present Value of Saving Plan using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value of Saving Plan = ?

Rate = 11%

Nper = 6

PMT = 744

FV = 0
Substituting the values in formula:

=-pv(11%,6,744,0)

PV or Present Value of Saving Plan = $3,147.52

 

Computation of Annual Deposit using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Annual Deposit = ?

Rate = 6%

Nper = 8 years

PV = $2,771

FV = 0

Substituting the values in formula:

=pmt(6%,8,-2771,0)

PMT or Annual Deposit = $446.23

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