cash flow question (uniform payment series?)

[crazymetalmouth]

To withdraw the following $1000 payment series, determine the minimum deposit (P)
you should make now if your deposits earn an interest rate of 10%, compounded
annually. Note that you are making another deposit at the end of year 7 in the amount of
$500.Which the minimum deposit P, your balance at the end of year 10 should be zero.


Oh man, if somebody coud help me solve this .... I will be endlessly grateful.

Answer = 5375

THANK YOU!

 

[crazymetalmouth]

P.S. basically, we were given a bunch of formulas, i know this is a multi-step problem, and i am not getting the right answer, i don't think i am applying the right interest formlas. i am stumped and so is my friend, we've been working on this stuff for 2 hours, so your help is very much appreciated.

 

[Denis]

Well, post the problem so it is understandable, then we'll be able to help.

You have: "To withdraw the following $1000 payment series..."
What does that mean? For how long?

Post the original problem IN FULL :shock:

 

[crazymetalmouth]

that is the original problem in full, Denis.

formulas we have been working with include the
compound amount factor : F = (1 + i) ^n
present worth factor (discount): P = 1 over (1 + i) ^ n
sinking fund factor : A = i over [(1 + i)^n - 1]
uniform series compound amount factor
capitalrecovery factor
series present worth factor
arithmeticand geometric gradient factors... not relevant to question i think

thanks so much!!

 

[Denis]

WHOA! The problem as given does NOT have enough information;
take it as it is to a local financial firm and see what happens :shock:

I can guess at the following:
a deposit of $P is made today and a deposit of $500 will be made 7 years later;
this will permit 10 annual withdrawals of $1000, the 1st being 1 year after $P is deposited:
a zero balance will result after the 10th withdrawal. 10% is the annual rate applicable.
Calculate P.

IF (as you state) P = 5375, then the balance after 10 years will be -1330.56 (overdrawn).
For zero to result, P must equal ~$5888

HOWEVER:
IF at end of 7th year there is NO withdrawal (but ONLY a $500 deposit), then 5375 is correct;
now show me where this is stated in the problem :?

The problem then should be worded to contain ALL relevant info; like:
To withdraw $1000 annually for 10 years (except at end of 7th year when a $500 deposit is made instead),
determine the minimum deposit (P) you should make now if your deposits earn an interest rate of 10%,
compounded annually. Your balance at the end of year 10 should be zero.