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accumulate a future sum, (2) loan amortization, (3) interest or growth rates, and
(4) finding an unknown number of periods. Deposits Needed to Accumulate a Future Sum
Suppose you want to buy a house 5 years from now, and you estimate that an initial down payment of $20,000 will be required at that time. To accumulate the
$20,000, you will wish to make equal annual end-of-year deposits into an account
paying annual interest of 6 percent. The solution to this problem is closely related
to the process of finding the future value of an annuity. You must determine what
size annuity will result in a single amount equal to $20,000 at the end of year 5.
Earlier in the chapter we found the future value of an n-year ordinary annuity, FVAn, by multiplying the annual deposit, PMT, by the appropriate interest
factor, FVIFAi,n. The relationship of the three variables was defined by Equation
4.14, which is repeated here as Equation 4.22:
FVAn PMT (FVIFAi,n) (4.22) We can find the annual deposit required to accumulate FVAn dollars by solving Equation 4.22...
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