Question

Jinhee Ju. 27. has an annual salary of $37,000. Jinhee wants to buy a new car in 3 years, and she wants to save enough money to make a $7,000 down payment on the car and finance the balance. Also, in her plan is a wedding. Jinhee and her boyfriend, Paul, have set a wedding date 2 vears in the future, after he finishes medical school. Paul will have a $100,000 student loan to repay after graduation. But both Jinhee and Paul want to buy a home of their own as soon as possible. This may be possible because at age 30, Jinhee will be eligible to access a $50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds.

 1. Calculate the amount that Jinhee needs to save each year for the down payment on a new car, assuming she can earn 6 percent per year on her saving. How much of her down payment will come from interest earned?

Answer 1

To make the down payment, she needs to have $7000 in 3 years. The yearly amount to save is calculated using PMT function in Excel :

rate = 6% (interest rate earned on savings)

nper = 3 (number of yearly savings)

pv = 0 (beginning savings is zero)

fv = 7000 (savings required at end of 3 years).

PMT is calculated to be $2,198.77.

She needs to save $2,198.77 each year to make the down payment.