You want to have $42,000 in your savings account 8 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.7 percent interest each year, what amount must you deposit each year? NOTE: You are exchanging cash today for a series of cash flows. This is an annuity problem (chapter 6) where we the value of the annuity is defined at the END of all the cash flows, so use the future value of an annuity equation, FVA = C (1+r)^-1 You already know what the annuity is targeted to be worth in the future (FVA), the number of payments (N), as well as the discount rate (r). You only need to calculate C, the size of the cash flow. = Multiple Choice $4,138.09 $6,984.69 $5,250.00 $2,814.01 $2,813.98 The appropriate annual discount rate for the following cash flows is 14 percent compounded quarterly. HINT: even though there is a series of cash flows, we can't use the annuity equation since the cash flows aren't constant (or growing at a constant rate). Instead you must value the cash flows using the chapter 5 formula for single cash flow, and then add them all together. The twist here is that the compounding of interest is not annual, but the cash flows are. So when you use the chapter 5 formula PV = FV / (1+r), you must first convert the APR into an EAR. Alternatively, you could simply change t to represent the number of compounding periods (4 in each year) and use the true quarterly discount rate as r, which in this case is APR/4. Year 1 2 3 Cash Flow $700 600 0 1,000 Required: What is the present value of the cash flows