Question

Jack has made deposits of $250 at the end of each month for 2 years into an investment fund paying interest at j₄ = 8%. What monthly deposits for the next 12 months will bring the fund up to $10 000?

The answer is 239.89

Idk what I'm doing wrong;

First I convert the rate of interest,

(1.02)^4 = (1 + i)^12

i= 1.006 %

Then I accumulate this annuity using my Financial Calculator as following;

i= 1.006

n= 24

r= 250

pv= 0

the answer I get is 6751.37

Now, I use this as my new present value and put 10,000 as my final value, while changing the n to 12 and keeping the interest rate at 1.006. When I compute the payment I get the wrong answer Idk why. What am I doing wrong?  

Answer 1

Hello Sir/ Mam

My and your terminologies may differ due to use of different calculators. I'm using Texas Instruments BAII Plus and quoting terms of the same.

The given rates, i.e. 8% are APR and can be easily converted into monthly regime by doing 8%/12.

Hence,

Rate = 0.67%

Deposits = $250

Periods = 24

i = 0.67%, n = 24, pmt = -250, pv = 0, we get $6483.30.

Now, this is the amount that we have after 2 years, to make it $10,000

FV = $10,000, i = 0.67%, PV = -$6483.30, n = 12

Now, we will get pmt = $239.89(approximately)

I hope this solves your doubt.

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