Question

The Weidmans want to save $20,000 in 4 years for a down payment on a house. If they make monthly deposits in an account paying 12%, compounded monthly, what is the size of the payments that are required to meet their goal? (Round your answer to the nearest cent.)

Answer 1

Answer:

Weidwans will do monthly contribution of 326.68 per month to be able to get 20,000 in four years and make the downpayment for a house.

Explanation:

We want to make monthly deposit to generate a future value of 20,000 in 4 years at 12% annual rate compounding monthly

$FV \div \frac{(1+r)^{time} -1}{rate} = C$

FV  $20,000.00

time 4 years x 12 month per year: 48

rate 12% per year / 12 month = 1% monthly  = 0.01

$20000 \div \frac{(1+0.01)^{48} - 1}{0.01} = C$

C $ 326.68

Weidwans will do monthly contribution of 326.68 per month to be able to get 20,000 in four years and make the downpayment for a house.