Jane wishes to have $20,000 available at the end of 10 years, so she deposits money into an account that pays 1.14% compounded monthly. How much does she need to deposit in order to meet this goal?
Jane wishes to have $ 20,000 at end of 10 Years. So, | |||||||
Future Value = | 20000 | ||||||
Interest rate compounded monthly (r )= | 1.14% | or 0.0114 | |||||
This rate is annual rate compounded monthly. | |||||||
So, Effective interest rate per year = (1+ r/m)m - 1 | |||||||
Effective Annual interest rate = ( (1 + 0.0114/12) 12 } - 1 | |||||||
Effective Annual interest rate = | 0.01146 | ||||||
Effective Monthly Interest rate = 0.01146/12 = | 0.000955 | ||||||
Time period = 10 years | |||||||
Compounding is monthly. So total monthly periods = 10 *12 = | 120 | ||||||
Present Value = Future Value / (1+r)n | |||||||
. = 20000 / (1+0.000955)120 | |||||||
$17,835.43 | |||||||
So, she need to deposit $ 17,835.43 to have $ 20,000 at end of 10 Years. |
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