Question

On November 1, you decide that in exactly two years you will take a cruise that costs $11,211. How much should you deposit each month into your vacation fund to have $11,211 in two years to pay for the trip? Assume an annual interest rate of 1.3% compounded monthly. (Assume that the deposits are made at the end of each compounding period.)

A) $471.65
B) $473.75
C) $475.85
D) $477.95

Answer 1

To have $11,211 in two years to pay for a cruise that costs $11,211 with an annual interest rate of 1.3% compounded monthly, you should deposit approximately $473.75 each month into your vacation fund.

Step-by-step explanation:

To calculate the monthly deposit required, we can use the formula for the future value of an ordinary annuity:

FV = P * [(1 + r)^n - 1] / r

Where FV is the future value, P is the monthly deposit, r is the monthly interest rate, and n is the number of compounding periods.

In this case, FV = $11,211, r = 1.3% / 12, and n = 2 * 12. Plugging in the values, we get:

$11,211 = P * [(1 + 0.013/12)^(2*12) - 1] / (0.013/12)

Solving for P, we find that the monthly deposit should be approximately $473.75. Therefore, the correct answer is B) $473.75.