How much do you need to deposit every year

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Question - You can't wait for some travelling after the pandemic ends! Although no one is sure about how long the pandemic will last, you decide to make a deposit at the end of every year in a saving account that earns 3.68% effective annual rate as your travelling fund. Your plan is to save for 5 years, and then go to a different country every year for the next 20 years. You do NOT plan to make additional savings during the years you travel. You pay a travel agency the cost of each trip at the beginning of each travelling year. The first trip will cost you $5,000, with each additional trip costing 2% more because of inflation.

a) How much do you need to deposit every year in order to have enough for your travel plans?

b) If your bank offers you an alternative account that pays an annual percentage rate of 3.64% compounded monthly, should you switch to the alternative account? Justify your answer.

Reference no: EM133032946

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