Question

You want to purchase a new car in 3 years and expect the cost to be $15000. Your bank offers a savings plan with an annual interest rate of 5.5% if you make regular monthly deposits. How much should your monthly deposits be in order to end up with $15000 in 3 years? Round your answer to the nearest cent.

Answer 1

Answer: 1710.6 ( approx)

Explanation:

Since, we have to find out monthly deposits be in order to end up with $15000 in 3 years.

Therefore, Our future value of annuity = $ 15000

But, we know that, future value of annuity =
`P[((1+r)^n-1)/(r)]`

Where, P is periodic payment

r is the rate per period

And, n is number of periods.

Since here P=? r = 5.5/12= 0.4583 (approx) and n= 36 months

Therefore, 15000=
`P[((1+0.4583)^(36)-1)/(0.4583)]`

⇒ P= 15000/ 8.76891732514 = 1710.58745839≈1710.6