Question

You decided to save money for a travel to Barcelona in two years. You decided to open a savings account and make equal monthly deposits for the next two years. You think that you need to save $5,000. You checked a few banks to find out the best savings account and identified one, the APR of which is 3.6%. You will receive interests every month and you are going to keep those received interests in your savings account. How much do you have to deposit each month into this account to have exactly $5,000 in two years? (i.e., you are going to make 24 monthly deposits starting from the end of this month. You have to have $5,000 in your account right after you make your twenty-fourth deposit)

Answer 1

We are given the following information:

Interest rate	r	3.60%
number of years	n	2
Frequency is monthly	T	12
Accumulated amount after 2 years	FV	$              5,000.00

We need to solve the following equation to arrive at the required monthly payment or PMT:

FV = PMT X (1+ 7)"XT - 1 F (1+ (1 + 0.036 2x12 - 1 5000 = PMT X 12 0.036 12 PMT=201.24

So the monthly payment should be $201.24 to accumulate 5000 after 24th payments

So the FV is $5000