Lesson29

# Lesson29 - Summer Lesson 29 Appendix I Sections 5.5 and 5.6...

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1 Summer Lesson 29 Appendix I Sections 5.5 and 5.6 If the situation of an ordinary annuity is reversed and we need to find what regular deposit or payment should be made now to provide a specific future amount, the following formula would be used. This amount R is called a sinking fund payment. Suppose Karen wants to know how much she should deposit monthly in order to have \$20,000 in 10 years. This is the type of situation for the following formula. Sinking Fund Payment: For an annuity to provide a future value S , regular deposits R are made k times per year for t years, with interest compounded k times a year at an annual interest rate r . The payment R is given by…. , where (the periodic rate) (1 ) 1 kt Si r Ri ik == +− Ex 1: Find the amount of each regular payment that would provide \$30,000 in 15 years at an annual rate of 6% and compounding semiannually. Ex 2: A teacher has been making monthly payments of \$350 into a retirement account. This account earns 3.5% annual interest and is compounded monthly. If she retires in 20 years after she started making payments, how much will be in the account?

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2 Ex 3: A mother began putting \$1250 every 3 months in an college account for her daughter beginning when the daughter turned 12 years old. If the account earns 8 ½ % annual interest, compounded quarterly, how much is in the account on the daughter’s 20 th birthday?
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Lesson29 - Summer Lesson 29 Appendix I Sections 5.5 and 5.6...

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