Question

Alejandro just graduated from college and wants to start saving for a new car. He would like to apply a downpayment of $15,000 at the end of 2 years in order to buy it. If his bank pays 4.1% interest, compounded annually. How much should he deposit each month?

Answer 1

Monthly deposti= $600.79

Explanation:

Giving the following information:

Future Value (FV)= $15,000

Number of periods (n)= 2*12= 24 months

Interest rate (i)= 0.041/12= 0.00342

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= (15,000*0.00342) / [(1.00342^24)-1]

A= $600.79