Question

A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much would you have to deposit each month in a savings account earning 3.5 percent APR, compounded monthly, to be able to pay the $3,500 bill in three years

Answer 1

$92.35

Step-by-step explanation:

using the future value formula for an ordinary annuity:

Future value = payment [((1 + r)ⁿ - 1) / r]

so, PMT = FV / [((1 + r)ⁿ - 1) / r]

• r = 3.5% / 12 = 0.002917
• n = 3 x 12 = 36
• FV = $3,500

PMT = 3,500 / [((1 + 0.002917)³⁶ - 1) / 0.002917] = $92.35