Question

** **Amy and Vince want to save

$5,000

so that they can take a trip to Europe in four years. How much must they save each month to have the money they need if they can get 5%,

compounded monthly, on their savings?

Answer #2

Future value annuity is used to calculate the value of a series
of periodic payments at a future date with a given interest
rate.

The payment at each interval can be calculated with the below
formula:

**P = [FV*r/m] / [(1+r/m) ^{m}*^{n}
-1]**

where P = Periodic payment

FV = future value or value to be saved at the end of the period

n = no. of periods, here n = 4 years

m = compounding period = 12 months.

r = rate of 5%.

= [5000*0.05/12] / [( 1+0.05/12)

=[20.8333] / [(1+ 0.004167)

= 20.8333 / [1.220895 - 1]

=

Amy and Vince need to save

answered by: anonymous

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