Question

You want to buy a car which will cost you $10,000. You do not have sufficient...

You want to buy a car which will cost you $10,000. You do not have sufficient funds to purchase the car. You do not expect the price of the car to change in the foreseeable future. You can either save money or borrow money to buy the car.

  • Plan 1: You decide to open a bank account and start saving money. You will purchase the car when you have sufficient savings. The nominal interest rate for the bank account is 6% per annum compounded monthly.

a) You will make regular deposits in your bank account at the start of each month for the next 2.5 years. Calculate the minimum required monthly savings to be deposited into the bank such that you would have sufficient funds to purchase the car in 2.5 years. (1 mark)

Homework Answers

Answer #1

Future Value of an Annuity Due (Beginning of the month payment)

Future Value = $1,0000

Monthly interest rate (r) = 0.50% per month [6.00% / 12 Months]

Number of years (n) = 30 Years [2.50 Years x 12 Months]

Monthly Deposit amount (P) = ?

Therefore, Future Value of an Annuity Due = (1 + r) x P x [{(1+ r)n - 1} / r ]

$10,000 = (1 + 0.0050) x P x [{(1 + 0.0050)30 - 1} / 0.0050]

$10,000 = 1.0050 x P x [(1.161400083 – 1) / 0.0050]

$10,000 = 1.0050 x P x [0.161400083 / 0.0050]

$10,000 = P x 32.44141666

P = $10,000 / 32.44141666

P = $308.25 per month

Hence, the monthly deposit amount will be $308.25

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You want to buy a car which will cost you $10,000. You do not have sufficient...
You want to buy a car which will cost you $10,000. You do not have sufficient funds to purchase the car. You do not expect the price of the car to change in the foreseeable future. You can either save money or borrow money to buy the car. Plan 1: You decide to open a bank account and start saving money. You will purchase the car when you have sufficient savings. The nominal interest rate for the bank account is...
4. You want to buy a new car in 3 years which will cost $42,000. You...
4. You want to buy a new car in 3 years which will cost $42,000. You plan to get a 5-year car loan at a 6% interest rate but don’t want your monthly payments to be over $300. You plan to save the rest needed by making monthly deposits into the bank, earning 7.5% on your money. How much do you need to save monthly over the next 3 years to reach your goal? 6. You are buying a new...
suppose that you have just celebrated your 18th birthday today. You decide to start saving money...
suppose that you have just celebrated your 18th birthday today. You decide to start saving money to purchase your first home in 12 years, which will cost $650,000. You aim to save sufficient money to pay the 15% initial deposit, and will take a mortgage to cover the 85% of property cost. The nominal interest rate for the savings account is 13% per annum compounded fortnightly. The nominal interest rate charged by the mortgage provider is 6% per annum compounded...
You want to buy a car that’s currently priced at $25,795. The price of the car...
You want to buy a car that’s currently priced at $25,795. The price of the car in one year will be $23,610 since it will be last year’s model. You currently don’t have anything in your bank account. Consequently, if you buy the car today you will borrow $25,795 from your parents who will charge you 3.76% APR compounded monthly. You will repay the entire loan balance in one year if you decide to buy the car today. How much...
You want to start saving for a new car and have decided to put $90 per...
You want to start saving for a new car and have decided to put $90 per month at the beginning of each month into an account which earns 6% compounded monthly. You would like to be able to buy a car for $25,000. (a) How many deposits will you have to make to reach your $25,000 goal? (b) How many years will that be? Please indicate what you entered into your calculator to solve these problems.
You want to save $59,400 in the next 8 years to buy a car. The savings...
You want to save $59,400 in the next 8 years to buy a car. The savings account you are thinking about offers 4.40% annually. You also plan to increase your annual deposits by 2.50% each year. What should be your deposit at the end of the first year? a. $6,945 b. $7,023 c. $5,216 d. $6,355 e. $5,852
You want to buy a new car. You can afford payments of $300 per month and...
You want to buy a new car. You can afford payments of $300 per month and can borrow the money at an annual interest rate of 5.5% compounded monthly for 5 years. How much are you able to borrow? $ How much interest do you pay? $
You want to buy a new car. You can afford payments of $500 per month and...
You want to buy a new car. You can afford payments of $500 per month and can borrow the money at an annual interest rate of 5.1% compounded monthly for 5 years. How much are you able to borrow? $ How much interest do you pay? $
Suppose you want to buy a car of $ 140,000 after 10 years. To buy it,...
Suppose you want to buy a car of $ 140,000 after 10 years. To buy it, you will save equal amount of money from the end of this year. How much do you have to save per year? The annual interest rate is 5% I. $ 9,854.45 II. $ 111,30.64 III. $ 12,696.61 IV. $ 233,743.5
To buy a fancy sports car, you need to borrow $300,000 from a bank. The bank...
To buy a fancy sports car, you need to borrow $300,000 from a bank. The bank will lend you the money for 5 years at an interest of 12% per year. What will be your monthly payment to the bank?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT