Answers FT GMS AMDM B IC – 72 AnnuitiesQuestion 14

14

QuizMultiple Choice

Annuities

Question 14 • FT GMS AMDM B IC – 72

You want to purchase a new car in 5 years and you anticipate the cost of the car to be $55,000. You are given an investment plan with a fixed APR of 6.2%, assuming that you make regular monthly deposits. How much should you deposit at the beginning of each month to reach your goal of $55,000 in 5 years? Round to the nearest cent.

Answer

A

$787.23

B

$786.65

C

$785.62

D

$780.23

Explanation

Because deposits are made at the beginning of each month, use the future value formula for an annuity due: 55,000 = PMT × [((1 + 0.062/12)^60 − 1)/(0.062/12)] × (1 + 0.062/12). Solving gives a monthly deposit of about $780.23. So the correct choice is $780.23.

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