Question 1142400: Jackson wants to have $18,000 available to buy a motorcycle in three years. How much should Jackson save each month if he earns 5% interest, compounded monthly?
Answer by ikleyn(52884)   (Show Source):
You can put this solution on YOUR website! .
I will assume that Jackson deposits certain amount of money at the end of each month during 3 years.
It is a classic Ordinary Annuity saving plan. The general formula is
FV =  ,
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 =  . (1)
Under the given conditions, FV = $18,000; r = 0.05/12; n = 3*12. So, according to the formula (1), you get for the monthly payment
P =  = $464.48.
Answer. The necessary monthly deposit value is $464.48.
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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.
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