Question

Sofia and Manuel are purchasing a home. They wish to save money for 15 years and purchase a house that has a value of $200,000 with cash. If they deposit money into an account paying 5% interest, how much do they need to deposit each month in order to make the purchase? Round your answer to the nearest cent, if necessary.

Answer 1

Monthly deposit= $745.76

Explanation:

Giving the following information:

Future Value (FV)= $200,000

Number of periods= 15*12= 180 months

Interest rate= 0.05/12= 0.0042

To calculate the monthly deposit, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= monthly deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (200,000*0.0042) / [(1.0042^180) - 1]

A= $745.76