How much should you save each year at an interest rate of 4.5% to accumulate $25,000 in 7 years?

To determine how much should be saved each year to accumulate $25,000 in 7 years at an interest rate of 4.5%, we would use the future value of an annuity formula. The formula calculates the amount of money needed to save periodically, taking into account the interest being earned on each payment.

The future value of an annuity formula is:

[

FV = P \times \frac{(1 + r)^n - 1}{r}

]

Where:

• ( FV ) is the future value you want to accumulate ($25,000),

• ( P ) is the payment amount per period (what we're trying to find),

• ( r ) is the interest rate per period (4.5% or 0.045), and

• ( n ) is the number of periods (7 years).

To isolate ( P ), we rearrange the formula:

[

P = \frac{FV \times r}{(1 + r)^n - 1}

]

Plugging in the values:

• ( FV = 25,000 )

• ( r = 0.045 )

• ( n = 7 )

Calculating this gives