Question

Abdullah wants to buy a car in 6 years. His dream car costs AED 300,000 today and car prices are expected to increase at a rate of 15% per year for the next 6 years. Calculate the amount that he needs to save on a monthly basis to buy his dream car in 5 years, if he can earn a 12% interest compounded monthly on his savings account.

Answer 1

FV of car = PV x (1 +r)ⁿ

pv = 300,000

r = 15%

n = 5

FV = 300,000 x (1+0.15)⁵

= AED 603,407.16

amount to be saved per month (PMT) = FV x i / (1+i)ⁿ -1

FV = 693,918.23

i = 12% / 12 = 1%

n = 5 x 12 = 60 months

= 603,407.16 x 1% / (1+ 0.01)⁶⁰ -1

= 7388.39

HE NEEDS TO SAVE 7338.39 PER MONTHS FOR 5 YEARS TO ACCUMULATE 603,407.16 AT THE END OF 5YEARS TO BUY A CAR

NOTE - CAR CAN BE APPRECIATED TO 15% FOR 6 YEARS BUT HE WANTS TO BUY IN 5 YEARS IS THIS AN ERROR OR JUST A TWISTED QUESTION