Question

Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan.Christopher would like to have $20,000 for a house down payment seven years from now. How much money would he need to save every quarter in an investment that pays 9% APR compounded quarterly?

Answer 1

Answer:

Christopher

He will need to contribute $661.51 every quarter for seven years.

Explanation:

a) Data and Calculations:

To save up to $20,000 for a house down payment seven years from now, Christopher needs to save every quarter:

Results

PMT = $661.51

N (# of periods) = 28

I/Y (Interest per year) = 2.25

PV (Present Value)  = 0

FV (Future Value) = $20,000

P/Y (# of periods per year) = 4

C/Y (# of times interest compound per year) = 4

PMT made at the of each quarter

 

Sum of all periodic savings = $18,522.41

Total Interest = $1,477.59