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Six years from today you need $10,000. you plan to deposit $1,500 annually, with the first payment to be made a year from today, in an account that pays an 8% effective annual rate. your last deposit, which will occur at the end of year 6, will be for less than $1,500 if less is needed to reach $10,000. how large will your last payment be?

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mathmate
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We calculate the future value of the 6 annual deposits of $1500 at 8%:
F=1500(1.08^6-1)/(0.08)=11003.89
Since the last payment is due on the day of withdrawal, he would have paid $1500 to get back $11003.89, i.e. with an excess of 1003.89.
Therefore his last payment is 1500-1003.89=$496.11

Amount of last payment is approximately $497

Given that;

Number of year = 6 year

Annual deposit = $1,500

Annual rate = 8% = 0.08

Find:

Amount of last payment

Computation:

[tex]Future\ value = Annual\ deposit[(1+r)^n - 1]/r[/tex]

[tex]Future\ value\ of\ the\ 6\ annual\ deposits = 1500[\frac{(1+0.08)^6 - 1}{0.08}][/tex]

[tex]Future\ value\ of\ the\ 6\ annual\ deposits = 1500[(1.08)^6 - 1]/0.08\\\\Future value of the 6 annual deposits = 1500[0.58687]/0.08[/tex]

Future value of the 6 annual deposits = 11,003.25

Future value of the 6 annual deposits = $11,003 (Approx.)

Extra payment = 11,003 - 10,000

Extra payment = $1,003

So,

Amount of last payment = 1,500-1,003

Amount of last payment = $497

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