Question

Tom wants to have $50,000 saved sometime in the future. How much must he deposit every month into an account that pays 1.45% interest, compounded monthly to reach the goal in 5 years?

Answer 1

$ 809.78

Explanation:

Given that

F = future value = $50,000

Interest rate = r = 1.45% = 0.0145

Number of period per year = 12months

Time expressed in years = 5years

The present value of a periodic deposit

P =( F ×r/n)/{ (1+r/n)^nt} -1

Substituting the values into the above formula

P = (50000× 0.0145/12)/(1+0.0145/12)^12×5}-1

= 50000×0.001208/(1+0.0012)^60}-1

= 60.4/1.0012)^60}-1

60.416/1.074608-1

60.4/0.07460

= $ 809.779

His monthly deposit will be $ 809.78