Question

Your brother would like to have $27,000 in 3 years for the purchase of a new car. What monthly payment should he make into an account paying 7% per year compounded monthly to attain his goal?

Answer 1

The monthly payment which is required to achieve the goal is $676.18

Step-by-step explanation:

The monthly payment which is required to achieve the goal is computed as:

Using the excel formula of PMT:

=PMT(rate,nper,pv,fv,type)

where

PMT is payment monthly

rate is 7%

but rate is compounded monthly, so

r = 7%/ 12

nper is number of years which is 3 years

but the number of years also compounded monthly, so

nper = 3 × 12

fv is future value, which is $27,000

Putting the values above:

=PMT(7%/12,3 × 12,0,-27000,0)

= $676.18