2 How much must the UAE Ministry of Finance deposit per year

2) How much must the U.A.E. Ministry of Finance deposit, per year, for 6 years in order to accumulate AED 1,000,000, if you earn 5% compounded annually on your investment? Perform your calculation first using a formula and then using the tables provided. If there is a small difference in the results, which is more accurate and how do you explain thedifference?

Solution

(1) Using formula

Required amount (AED) = 1,000,000 / F/A(5%, 6) = 1,000,000 / 6.8019** = 147,017.75

**F/A(5%, 6) = [(1.05)⁶ - 1] / 0.05 = (1.3401 - 1) / 0.05 = 0.3401 / 0.05 = 6.8019

(2) Using factor table

Required amount (AED) = 1,000,000 / F/A(5%, 6) = 1,000,000 / 6.8019** = 147,017.75

**From F/A factor table

Both the values are the same.