Question

At the end of 6 years, Jane wants to accumulate $1,500,000 for a down payment on a housing unit. She expects to earn 8%—compounded monthly—on her investments over the next 8 years. How much would Jane have to put in her investment account each month to reach her goal?

A) $26,300 B) $20,414 C) $16,300 D) $13,684

Answer 1

The amount is computed as shown below:

Future value = Monthly payment x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 8% / 12 (Since payments are on monthly basis, hence divided by 12)

= 0.666666667% or 0.006666667

n is computed as follows:

= 6 x 12 (Since payments are on monthly basis, hence multiplied by 12)

= 72

So, the amount will be computed as follows:

$ 1,500,000 = Monthly payment x [ [ (1 + 0.006666667)⁷² - 1 ] / 0.006666667 ]

$ 1,500,000 = Monthly payment x 92.02532627

Monthly payment = $ 1,500,000 / 92.02532627

Monthly payment = $ 16,300 Approximately

So, the correct answer is option C.

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