SOLUTION: I cannot seem to figure the last part of this one out. The problem reads : You would like to take a cruise in six years. THe cruise currently costs $4250. You expect the price t

Question 41061: I cannot seem to figure the last part of this one out. The problem reads :
You would like to take a cruise in six years. THe cruise currently costs $4250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you need to save at the end of each month so you will be able to afford the cruise in six years.
Here is what I have so far.
FV=PV*(1+r)^t
FV= 4250*(1+.04)6
FV=$5377.61 (cost of cruise)
Then to find how much I need to save each month I've tried using
PV=FV/(1+r)^t
PV=5377.61/(1+.05)^t
and I got
PV=160.29 (as what I need to save each month) but if I go back and multiply that times 72 months (6 years) It says I'll be saving 1154.88 wich is too much. Any help is appreciated. Thank you.
Answer by rajagopalan(174) (Show Source): You can put this solution on YOUR website!
dear student
Half way thro your solution in the 6 th step an error is there:
PV=5377.61/(1+.05)^t
The rate is 0.05/12 per month & not 0.05 the annual rate.
Resubstitute & the score is yours.
cheers

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