Kathryn is looking to save $20,000 at the end of every year for 4 years. How much will she need in her bank account now to accomplish this if she can earn 5% per annum on these funds?
Question 8Select one:
a.
$71,465
b.
$72,699
c.
$74,465
d.
$70,919
To calculate the amount Kathryn needs in her bank account now, we can use the Future Value of an Annuity formula:
FV = Pmt * [(1 + r)^n - 1] / r
Where:
FV = Future Value ($20,000 for 4 years)
Pmt = Payment per period ($20,000)
r = Interest rate per period (5% per annum)
n = Number of periods (4 years)
Plugging in the values:
FV = $20,000 * [(1 + 0.05)^4 - 1] / 0.05
FV = $20,000 * [(1.05)^4 - 1] / 0.05
FV = $20,000 * (1.21550625 - 1) / 0.05
FV = $20,000 * 0.21550625 / 0.05
FV = $86,025
Therefore, Kathryn will need $86,025 in her bank account now to save $20,000 at the end of every year for 4 years at an interest rate of 5% per annum. None of the options provided match this calculation, so the correct answer is not listed.