Question

Abbie plans to take a holiday in 2 years' time and she estimates that she will need $12,000. At the end of each month, Abbie invests $486.44 in an account that pays 4%, compounding monthly. Will she have enough in this account immediately after the 24th payment to pay for her holiday? Justify your answer with calculations.

Answer 1

Solution :-

Interest Rate Per Month = 4% / 12 = 0.333%

Deposit per month = $486.44

Now Balance After 24 Payments = $486.44 * FVAF( 0.333% , 24 )

= $486.44 * [ ( 1 + 0.00333 )²⁴ - 1 ] / 0.00333

= $486.44 * [ 1.08314 - 1 ] / 0.003333

= $486.44 * 24.945

= $12,134.41

And Abbie Needs for trip $12,0000

So with Monthly Deposit of $486.44 , She have enough in his account immediately after the 24th payment to pay for her holiday

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