Question

A couple wants to save $14,000 for a down payment for a house in 4 years. For four years they will make deposits at the end of each month into an account which earns 7% compounded semiannually. Determine the size of the payments needed.

Answer 1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

? = ((1+7/(2*100))^2-1)*100

Effective Annual Rate% = 7.1225

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

14000= Cash Flow*(((1+ 6.9/1200)^(4*12)-1)/(6.9/1200))

Cash Flow = 254.1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

7.1225 = ((1+Stated rate%/(12*100))^12-1)*100

Stated rate% = 6.9