Question

You want to get to this 50,000 once and for all and want to do it 2.5 years. You want to hit the number exactly on the head in that 2.5 years and still can contribute the same amount but this time you will do $1,100 monthly and will get the same 3.259% rate. How much will your friend need to give you as an initial deposit to hit the 50K in 2 ½ years?

Answer 1

First, future value of the given monthly contribution shall be calculated: ((1+r)" – 1] FV of Annuity = P т P= Periodic Payment r=rate per period n= number of periods Expected balance after 2.5 years $1,100 0.27158% [3.259% / 12 --> Annual interest rate is converted into monthly rate] 30 (2.5 years x 12 --> As there will be 12 deposits in a year] $34,333.08 ($1100 x [((1+0.27158%)^30) - 1] / 0.27158%} Now, considering $34333.08 as the maturity amount in account after 2.5 years, initial deposit today for the remaining shall be calculated: Present value of a future lumpsum receipt = Balance needed in future to reach target / (1 + Monthly interet rate) 111 Montbl.it N umber of months to maturity Amount needed to reach target Monthly interest rate Number of months to maturity Friend need to give as an initial deposit $15,666.92 ($50000 - $34333.08] 0.27158% [3.259% / 12 --> Annual interest rate is converted into monthly rate) 30 (2.5 years x 12 --> As there will be 12 deposits in a year] $14,442.67 ($15666.92 / (1+0.27158%)^30]