Your choice of vehicle is the Honda CRV, which you plan to purchase in 5 years time after you have completed your studies. You plan to save a certain sum of money every quarter for the next 5 years, and the bank offers you a rate of 8% per annum on your savings. How much do you need to save every quarter to meet the price of your vehicle which is $150, 000.
| Quarterly saving will be an amount that future value of that will become to equal to price of vehicle. | |||||||||||
| Quarterly saving | = | Future Value / Future Value of annuity of 1 | |||||||||
| = | $ 1,50,000 | / | 24.29737 | ||||||||
| = | $ 6,173.51 | ||||||||||
| Working: | |||||||||||
| Future value of annuity of 1 | = | (((1+i)^n)-1)/i | Where, | ||||||||
| = | (((1+0.02)^20)-1)/0.02 | i | 8%/4 | = | 0.02 | ||||||
| = | 24.29737 | n | 5*4 | = | 20 | ||||||
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