SOLUTION: You would like to take a cruise in six years. The cruise currently costs $4,250. You expect the price to increase by 4% annually. You can earn 5% on your savings. How much do you n

Question 41628: You would like to take a cruise in six years. The cruise currently costs $4,250. 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 can afford your cruise in six years?
Answer by venugopalramana(3286) (Show Source): You can put this solution on YOUR website!
PLEASE NOTE THAT INFORMATION GIVEN/NOT GIVEN IS OPEN TO MULTIPLE INTERPRETATION..WHICH GIVES RAISE TO DIFFERENT ANSWERS.SO SOME ASSUMPTIONS ARE MADE AND MENTIONED BELOW.ANSWER IS SUBJECT TO THAT
You would like to take a cruise in six years. The cruise currently costs $4,250. You expect the price to increase by 4% annually.(ANNUAL COMPOUNDING ASSUMED)
A=P(1+R)^N....
P=4250
R=4%=0.04
N=6 YRS.
A=4250(1.04)^6=5377.61
You can earn 5%(PER YEAR...ANNUAL COMPOUNDING ASSUMED) on your savings. How much do you need to save at the end of each month so you can afford your cruise in six years?
LET MONTHLY PAYMENT BE X.IT IS ASSUMED THAT ANNUAL SAVING WILL QUALIFY TO EARN COMPOUND INTERST AS GIVEN
SO SUM AT THE END OF 1 ST.YR...12X..THIS WILL EARN INTEREST FOR 5 YEARS
SO A=12X*1.05^5
SIMILARLY FOR OTHER YEARS WE GET
12X*1.05^4,12X*1.05^3,12X*1.05^2,12X*1.05^1,12X*1.05^0
TOTAL =12X(1.05^5+1.05^4+1.05^3+1.05^2+1.05^1+1.05^0)=81.623X
THIS SHOULD EQUAL 5377.61
X=65.88
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