Question

If you want to have $1,500 in two years, how much money should you deposit each month if you can earn 5% per year (assume monthly compounding)

Answer 1

Answer: $59.56

Step-by-step explanation:

Convert the figures to monthly figures.

Term = 2 * 12 months = 24 months

Rate = 5%/12 = 5/12%

The amount should be constant so it will be an annuity.

The $1,500 will be the future value of that annuity.

Future value of annuity = Annuity * ( ( 1 + rate) ^ number of periods - 1) / rate

1,500 = Annuity * ( ( 1 + 5/12%)²⁴ - 1) / 5/12%

1,500 = Annuity * 25.18592

Annuity = 1,500 / 25.18592

= $59.56