Question

1. A student wants to have $30,000 when he graduates 4 years from now. His grandfather gave him a gift of $10,000. How much must he save each year (to the nearest dollar) if he deposits the $10,000 today and can earn 12% on both the $10,000 and his savings?

	A.	$ 3015
	B.	$ 2885
	C.	$ 2985
	D.	$ 2915

SELECT THE ANSWER

Answer 1

Lets disect the information given above.

His grandfather gave him 10000. So this amount becomes PV.

He wants to have 30000 in 4 years from now. So this 30000 is the FV and nper is 4.

Interest rate is given as 12%

We need to find the annual savings he must make. i.e we need to find te PMT.

PV=-10000

FV=30000

nper =4

I/Y (rate) =12%

In the financial calculator input these amounts you will get the answer as

PMT=-2985

Negative sign because we are depositing this 2985 amount annualy in the account. ( We can ignore the sign).

We can use excel to find the answer. Use the PMT function.

=PMT(12%,4,-10000,30000,0)

=-2985