Question

Huang has a goal to have $50,000 in five years for a down payment on a house. He

invests in an annuity paying 6% interest, compounded monthly. How much does he
have to deposit each month to reach his goal? Enter your answer rounded to the
nearest cent. Omit the dollar sign and comma.

Answer 1

$716.64

Explanation:

We will use the savings annuity formula

A(t)=d((1+r/n)n⋅t−1)r/n

and solve for d. In this case, A(5)=$50,000, r=0.06, and n=12 compounding periods per year. Substitute these values into the formula.

$50,000=d((1+0.06/12)5⋅12−1)0.06/12.

Simplify and solve for d.

$50,000$50,000 d=d(1.00560−1)0.005=69.7700305 d=$716.64

He will have to deposit $716.64 every month to reach his goal.