Question

A bank is offering a 2% APR compounded quarterly on its savings accounts. In order to have $10,000 in this account three years from today, how much should I deposit each quarter assuming the first deposit will be in three months?

Answer 1

The amount is computed as shown below:

Future value = Quarterly deposits x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 2% / 4 (Since the savings are quarterly, hence divided by 4)

= 0.50% or 0.005

n is computed as follows:

= 3 x 4 (Since the savings are quarterly, hence multiplied by 4)

= 12

So, the amount will be as follows:

$ 10,000 = Quarterly deposits  x [ [ (1 + 0.005)¹² - 1 ] / 0.005]

$ 10,000 = Quarterly deposits x 12.33556237

Quarterly deposits = $ 10,000 / 12.33556237

Quarterly deposits = $ 810.66

Feel free to ask in case of any query relating to this question