Howard is saving for a long holiday. He deposits a fixed amount every month in a...

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Howard is saving for a long holiday. He deposits a fixed amount every month in a...

Howard is saving for a long holiday. He deposits a fixed amount every month in a bank account with an EAR of

8

%.

If this account pays interest every month then how much should he save from each monthly paycheck in order to have

$ 14 000

in the account in

four

years' time?

A.

$ 400

B.

$ 200

C.

$ 250

D.

$ 350

business finance

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Answer 1

Answer #1

FV_{Ordinary Annuity} = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

14000= Cash Flow*(((1+ 8/1200)^(4*12)-1)/(8/1200))

Cash Flow = 248.45 = 250

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Answer 2

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