Question

You want to buy a new surfboard 6 years from now. You have $700 in the bank today. You can earn 5% on your savings. If the surfboard will cost $5,000, how much will you have to save every year to have enough to buy it? Round your answer to 2 decimals, for example 100.12

Answer 1

Answer 1:

Amount on bank as of now = $700

Interest rate = 5%

Amount required = Future value (FV) = $5,000

Time period = 6 years

To get Annual Amount you need save (deposit at the end year) every year, we will use PMT function of excel:

PMT (rate, nper, pv, fv, type)

= PMT (5%, 6, 700, -5000, 0)

= $597.18

Amount you have to save every year = $597.18

Answer 2:

Loan amount = $50,000

Yearly Interest rate = 4%

Time period = 5 years

To get annual payments we will use PMT function of excel:

PMT (rate, nper, pv, fv, type)

= PMT (4%, 5, -50000, 0, 0)

= $11,231.36

Annual payment amount = $11,231.36