Question

Realizing that the cost of graduate school is increasing and extraordinarily high, you decide to plan ahead and save monthly in your savings account that pays 6%, compounded monthly. You have done your research and have estimated your degree to cost $40,000, payable in four years. How much must you save monthly to accumulate this amount in four years?

Answer 1

	This can be solved using the Future value of annuity
	Future value of annuity = [(P*(1+r)^n-1/r))]
	P is Period Payment for month = ?
	n is No of months = 4*12 =48 Months
	r is rate of interest per month = 0.5%
	Future value of annuity = $ 40,000 /-
	40000=P*((1+0.005)^48-1)/0.005)
	40000=P*54.09783222
	P is $ 739.40 /- Approx.
	He need to save monthly an amount of $ 739.40/- for 4 yrs