Miriam Ramos has saved $12,000 towards a down payment on a new house. She wants to...
Miriam Ramos has saved $12,000 towards a down payment on a new house. She wants to have a total of $40,000 and plans to buy in 5 years. How much will she have to save at the beginning of each month if she can earn 2.5% on her savings?
-
$413.59
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$412.73
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$839.53
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$837.78
Homework Answers
Answer : $412.73
Explanation :
Total Savings required after 5 years = $40,000
Rate of earnings on Interest = 2.5%
Monthly Rate of Interest = 2.5% / 12 i.e. 0.2083%
Initial Savings for down payment = $12,000
Now the equation is
Total Savings required after 5 years = Value of Initial Savings after 5 years + Value of monthly Savings after 5 years
Value of initial Savings after 5 years = Initial savings for down payment * Compounding factor for 60 months (Refer image)
= $12,000 * 1.133
= $13,596.01
Value of monthly savings after 5 years = Monthly Savings * Cumulative compounding factor of 60 months (Refer image)
= Monthly Savings * 63.97353962
Now put the values in equation
$40,000 = $13,596.01 + (Monthly Savings * 63.97353962)
Monthly Savings = ($40,000 - $13,596.01) / 63.97353962
Monthly Savings = $412.73
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