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Calculate Present value of deposits and payments at t=6.
1000*(1.07)^6 + 200*[((1.07)^5-1)/0.07]*1.07 =
= 1500*(1/1.07) + (1500-Q)*(1/1.07)^2 + (1500-2Q)*(1/1.07)^3
2731.3885 = 3936.4741 - Q*2.5060345
Q = 480.8735
Answer is B.
----------
From: szetoe@towers.com
Sent: Thursday, September 24, 1998 12:17 PM
To: - (052)studygroup4a(a)lists.casact.org
Subject: Spring 1998 exam Question 5
The questions reads:
Leo will make an initial deposit into an account of $1000 at time t=0,
followed by five
annual deposits of $200 at times t = 1, 2, 3, 4, 5. Leo will receive
payments from the
account at times t = 7, 8, 9, starting at $1500 and decreasing by $Q
per year. The
balance in the account after the last payment is $0.
You may assume this account earns an effective annual interest rate of
7%.
Determine Q.
A. Less than $450
B. At least $450, but less than $490
C. At least $490, but less than $530
D. At least $530, but less than $570
E. $570 or more
I keep getting an answer of Q = $621.82 but the answer is B.
Can someone help me please?!?!?
Thanks,
Erica Szeto
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