Question

A local furniture store is advertising a deal in which you buy a $2.600 dining room set and do not need to pay for two years (no Interest cost is incurred). How much money would you have to deposit now in a savings account earning 6 percent APR compounded monthly, to pay the $2.600 bill in two years? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Present value How much would you have to deposit in the savings account each month to be able to pay the bill? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Annuity payment per month

Answer 1

1.Information provided:

Future value= $2,600

Time= 2 years*2= 24 months

Interest rate= 6%/12= 0.50% per month

The question is solved by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 2,600

N= 24

I/Y= 0.50

Press the CPT key and PV to compute the present value.

The value obtained is 2,306.6827.

Therefore, I would have to deposit $2,306.68 now to pay the bill of $2,600 in 2 years.

2. Information provided:

Future value= $2,600

Time= 2 years*2= 24 months

Interest rate= 6%/12= 0.50% per month

Enter the below in a financial calculator to compute the monthly payment:

FV= 2,600

N= 24

I/Y= 0.50

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 102.2336.

Therefore, I would have to deposit $102.23 each month to pay the bill of $2,600 in 2 years.

In case of any query, kindly comment on the solution.