Question

It is 1 July, 2013. On 1 July, 2011 you received an inheritance of $1000 which you deposited into a savings account earning 6% p.a. compounded monthly. You need plan to buy a house and you want to save $20000 for a deposit by1 July 2014. You will use your inheritance as part of this deposit. You also want to take an overseas holiday leaving 1 July 2016, which will cost $8000. You decide to set up a regular saving plan to fund these two expenses and you will start saving next month. You expect the 6% p.a. compounded monthly rate will remain constant over the life of your investment. How much will you need to save on a monthly basis to do this? Draw a timeline and show all your workings. Check your answer. Using the monthly savings you just calculated, how much will you have in the account on 1 July 2014? Is this enough for you to put the $20000 on the house? If not, you have done the calculation incorrectly.

Answer 1

Pue compounded monthly returns will be taken. 320,000) Given data: 1 July will - inheritance : $ 1,000 (will be deposited in sewings that Depost needed to buy house earn 67. P.a compounded monthly = $20,000 (required by 1, July 2014) * Inheritance can be used for this Holiday expenses required - $8,000 (by 1, July 2016) If Saved 67. Pod compounded monthly retur ( with us soruinement he requirement ($ 8,00) Hor 1, July 2011 July 2014 s, July 2016. first we have to calculate whether $1,000 received as int will be enough for deposit on 1, July 2014 for house. Effecting esturing rate (CAR) = (1+.2.)" - +(144%) + = 6.1%, Future value of 1,000 on 3, July 2014 Cafter Byears) 1,000 14 6 147) 3 [Ev=pu (1 +8 %)") 1,196.7 $1,197 so the additional hind on 1 July 2014 - $ 20,000 - 1,197 - $ 18, 803 so we have to save another & 18, 803 by end of 1, July 2014

US consid months) 24 consider he cares "X" per month starting from 1, July 2016 till 1, July 2014. We have 1 year (12 months of time) 0 2 3 EHHI and monthly interest rate will be 60% 12 = 0.5% per mouth. reless X (1+0:5 7.5" + x (10.57.57. +X (1+0.5%) + BONES = 18, 803 The above equation is in G.P Sn- all-3") and as X (10.5.7)" >> 104389 X (1+0.5%)" [1-0.9952] = 124 x The =) 1-8 (Hoisy- 0.995 1 - 0.995 = 18, 803 X4 1.0564) (0.058) = 18, 803 (0.005) x 18, 803x 0.005 0.058 x 1,0564 ~$1535 - 1534.4

So he needs $1,535 saved por mouth steasting , sug 2013 19lostis till , July 2014 so that rundt 120,000 will be feved to soy deposit. Now we will take the other expenre $8,000 for holiday on 1 July 2016 3 July 2016 2 from the previous we cam observe that by and of year we will save x Chorygu (1 - 0.997 121) - 0.995 x 11.0564) (0,058) 0.005 - 12.254 (X) But our EAR = 8.17% per annum, 12.054* (146.173.)12.95916146.117.)" Haut 12.2547: 8,000 rod Again we will use Gop Snau-") and there a = 12:0544 (146.11%)2 g de Girit 019422 12.254x(146.117.7% (1-0-7427] - 8,00 1- 0.942 od 8,00 X (1-0-942) 80008 0.058 12.264 x (146.117.74 (1-0.142) 12.994*1.127 x buitend 1-X 204.8 N$205 for deposit of house he has to save $15,35 per month and $205 per month for holiday starting from it Aug 2013 till the fulfillment of each gral.