Calculation of amount of annuity:
It is given that Steve Madison needs $250,000 in 10 years. And we are asked to find how much must he invest at the end of each year, at 5% interest. That means we are asked to find the annuity amount, which can be calculated as follows:
Annuity = Future value / Future value of $1 Annuity
Future value is $250,000
And Future value of $1 Annuity (5%, 10 years using the Present value table) is 12.57789
Hence, the Annuity = 250,000 / 12.57789 = 19,876.15
Hence Steve Madison should invest $19,876.15 each year.
