Isabel wants to save money to buy a motorcycle She invests i

Isabel wants to save money to buy a motorcycle. She invests in an ordinary annuity that earns 7.8% interest, compounded quarterly. Payments will be made at the end of each quarter. How much money will she need to pay into the annuity each quarter for the annuity to have a total value of $5000 after 6 years? Do not round intermediate computations, and round your final answer to the nearest cent. If necessary, refer to the list of financial formulas

Solution

The Answer is “$262.86”

Quarterly Interest Rate = 7.80% / 4 quarters = 1.95%

Number of periods = 6 Years x 4 Quarters = 24 Periods

Future Value = $5,000

Future Value = Quarterly Annuity payments x Annuity Factor

$5,000 = Quarterly Annuity Payment x [PVAIF 1.95%, 24 Periods]

$5,000 = Quarterly Annuity Payment x 19.02149396

Quarterly Annuity Payment = $5,000 / 19.02149396

Quarterly Annuity Payment = $ 262.86

\" Isabel needs to pay $262.86 into the annuity each quarter for the annuity to have a total value of $5,000 after 6 years \"