Question

I want to establish a savings account today, providing 24% annual interest compounded monthly, so that...

I want to establish a savings account today, providing 24% annual interest compounded monthly, so that I can withdrawal $6,000 at the end of each of the next 3 years. Identify the details below that I need in order to determine how much money I must have in the savings account today.

What table must I use to find the relevant factor?

  1. Future value of single-sum
  2. Present value of single-sum
  3. Future value of ordinary annuity
  4. Present value of ordinary annuity

  What is the interest rate to find the relevant factor?

  What are the number of periods (n) to find the relevant factor?

  What is the factor?

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Homework Answers

Answer #1
What table must I use to find the relevant factor?
Answer = Present value of ordinary annuity
What is the interest rate to find the relevant factor?
Interest rate = 24%/12 = 2.00%
What are the number of periods (n) to find the relevant factor?
Number of period = 3*12 = 36
What is the factor?
Factor should be cloed to = 25.489
Below is the calculauation based on financial calculator
Put in calculator
FV 0
PMT 1
I 2%
N 36
PV (25.489)
0 0
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