The Pocatello Pokeys have just hired a new team manager The

The Pocatello Pokeys have just hired a new team manager. The contract requires $25,300,000 be paid to the manager after she completes 6 years of service. The team wants to set aside an equal amount of money each year to cover this future payment. If the team earns 5 percent on their investments, how much must the team set aside each year? Assume they set aside the first payment at the end of the year.

$3,719,541.94

$1,265,000.00

$3,642,361.45

$3,637,712.02

$1,403,072.25

Solution

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

25,300,000=Annuity[(1.05)^6-1]/0.05

25,300,000=Annuity*6.801912813

Annuity=25,300,000/6.801912813

which is equal to

=$3,719,541.94(Approx).