SOLUTION: Niki needs $5200 for university tuition when she graduates from high school in 2 years. She plans to make deposites into an account that earns 6.5%, compound monthly. How much shou

Algebra ->  Customizable Word Problem Solvers  -> Finance -> SOLUTION: Niki needs $5200 for university tuition when she graduates from high school in 2 years. She plans to make deposites into an account that earns 6.5%, compound monthly. How much shou      Log On

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Question 1148191: Niki needs $5200 for university tuition when she graduates from high school in 2 years. She plans to make deposites into an account that earns 6.5%, compound monthly. How much should she deposit every month?
Answer by ikleyn(52786) About Me  (Show Source):
You can put this solution on YOUR website!
.
It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = P%2A%28%28%281%2Br%29%5En-1%29%2Fr%29,    


where  FV is the future value of the account;  P is the monthly payment (deposit); r is the monthly percentage yield presented as a decimal; 
n is the number of deposits (= the number of years multiplied by 12, in this case).


From this formula, you get for the monthly payment 


    P = FV%2A%28r%2F%28%281%2Br%29%5En-1%29%29.     (1)


Under the given conditions, FV = $5200;  r = 0.065/12;  n = 2*12.  So, according to the formula (1), you get for the monthly payment 


    P = 5200%2A%28%28%280.065%2F12%29%29%2F%28%281%2B0.065%2F12%29%5E%282%2A12%29-1%29%29%29 = $203.47.


Answer.  The necessary monthly deposit value is $203.47.


Solved.

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On Ordinary Annuity saving plans,  see the lessons
    - Ordinary Annuity saving plans and geometric progressions
    - Solved problems on Ordinary Annuity saving plans
in this site.

The lessons contain  EVERYTHING  you need to know about this subject,  in clear and compact form.

When you learn from these lessons,  you will be able to do similar calculations in semi-automatic mode.