Question

You have decided to begin saving for a vacation to Hawaii. You believe that the full cost of the vacation, with airfare, accommodations, and dining will be $5,000. You are going to begin saving $150 per month, beginning one month from today. If your account pays interest at a rate of 7.2% APR compounded monthly, how many months will it take to save $5,000? Round your answer UP to the nearest whole month.

Answer #1

Number of months to save $5,000 is calculated using NPER function in Excel :

rate = 7.2%/12 (converting annual rate into monthly rate)

pmt = -150 (Monthly saving. This is entered with a negative sign because it is a cash outflow)

pv = 0 (amount currently saved is zero)

fv = 5000 (required ending value of account)

NPER is calculated to be 30.48

This is rounded up to 31

It will take 31 months to save $5,000

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