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You want to take a dream "vacation in 3.5 years". You plan to save up "$5,000" in your vacation sinking fund. Assume an interest rate of 8% compounded annually. How much will you have to save if you make a lump sum deposit to the sinking fund (i) during the year or (ii) at the beginning of the year?

(A) (i) $1,540 and (ii) $1,540
(B) (i) $1,640 and (ii) $1,640
(C) (i) $1,540 and (ii) $1,110
(D) (i) $1,640 and (ii) $1,310

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Answer:

Non of the answers is correct. The correct answer is $3,819.33

Explanation:

Giving the following information:

You want to take a dream "vacation in 3.5 years". You plan to save up "$5,000" in your vacation sinking fund. Assume an interest rate of 8% compounded annually.

1) We need to use the following formula:

PV= FV/(1+i)^n

FV= 5,000/(1.08)^3.5= $3,819.33

It doesn't change whether it is at the beginning or end.

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