Question

Please show what to enter on financial calculator to find the answer.

Currently, I have $2,500 in my bank account that pays 6% APR with monthly compounding. In order to have $12,000 in this account in 5 years, how much money should I add to this account each month starting from next month?

Answer 1

Solution

Total future value needed= 12000

Total future value needed=Future value of 2500+Future value of monthly amounts to be added

Future value of a cashflow=Cashflow*(1+r)^n

According to Future value of ordinary annuity formula

Future value of monthly payments=Monthly payments*(((1+r)^n)-1)/r

where

Monthly payment=?

Total future value needed= 12000

r-intrest rate per period=6/12=.5% per month

n=number of periods=5*12=60

Putting values in formula

12000=2500*(1+.005)^60+Monthly payments*(((1+.005)^60)-1)/.005

Solving we get

Monthly payment=$123.66

Using Financial calculator

Values to be entered

N-number of periods-60

I/Y intrest rate-.5%

PV-Present value  -2500

FV-Future value-12000

To be calculated PMT (Periodic payments)

Solving we get

Monthly payment=$123.66

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