Question

Suppose you want to save $50,000 as a down payment to purchase a house in 7 years. You plan on saving money at the beginning of each month starting today. If you can earn 3.60% APR on your investment over the time frame, how much must you save each month to reach your goal?

Answer 1

This is the future value of annuity calculation.

Monthly saving = A =?

Future value = FV = $50,000

r = rate of interest = 0.036

n = Number of years = 7

m = Number of months in a year = 12

7 1n 7 Ax 10.036 7%12 0.036 50,0001 (0.036/12) 50,000-1003 1.003*-) 50,000 1.003x 0.003 0.003 1.003 0.003 1.003 0.003 1.003 0.28611 50,000x #A(1.2861 1-1) 50.000 x0.286114 50. 000 522.71 Answer: The saving would be S522.71 per month.