Question

Jason Thomas has saved $3,500 towards a down payment on a new truck. He wants to have a total of $20,000 and plans to buy in 3 years. How much will he have to save at the end of each month if he can earn 2.5% on his savings?

Multiple Choice

• $433.64

• $635.25

• $636.58

• $434.55

Answer 1

$434.55

Step-1:Future value of current saving
Future Value	=	P*(1+i)^n		Where,
	=	3500*(1+0.0020833)^36		P			=	$ 3,500.00
	=	$   3,772.30		i	=	2.5%/12	=	0.0020833
				n	=	3*12	=	36
Step-2:Required monthly saving
Monthly saving	=	Future value of monthly saving	/	Future value of annuity of 1
	=	$ 16,227.70	/	37.34403
	=	$       434.55
Working:
# 1
Total amount required		$ 20,000.00
Less future value of current saving		$   3,772.30
Balance required		$ 16,227.70
# 2
Future value of annuity of 1	=	(((1+i)^n)-1)/i		Where,
	=	37.3440294		i	=	2.5%/12	=	0.0020833
				n	=	3*12	=	36