Question

You want to buy a house within 3 years, and you currently saving for down payment, you plan to save $300 at the end of each month, and you anticipate that your savings will increase by 10% annually thereafter. Your expected annual return during the saving period is 6%. How much will you have for a down payment at the end of year 3?

Answer 1

I will have have $1,054.24 at the end of three years for down payment.

During the first year
Monthly saving	300
Rate of interest	6% p.a.
Value at the end of the year 8*	=300 (1+0.06/12)^12
=	318.50
During the second year
Monthly saving (10% increase)	330
Rate of interest	6% p.a.
Value at the end of the year 8*	=330 (1+0.06/12)^12
=	350.35
During the third year
Monthly saving (10% increase)	363
Rate of interest	6% p.a.
Value at the end of the year 8*	=363 (1+0.06/12)^12
=	385.39
Fund available after three years	=318.50+350.35+385.39
=	1054.24
* Since it is a monthly deposit, we have to consider
rate of interest per month (6 % / 12)