You want to save $30,000 for a down payment on a home by making regular monthly deposits over four years. If the APR is 7%, how much money do you need to deposit each month?

Question

Quizplus · Accepted Answer

We can use the formula:

PV = PMT x [(1 - (1 + r/n)^(-nt)) / (r/n)]

where:
PV = present value (in this case, $30,000)
PMT = monthly payment
r = annual interest rate (7%)
n = number of times interest is compounded per year (12, since we're making monthly payments)
t = time (in years, so 4)

Plugging in the numbers, we get:

$30,000 = PMT x [(1 - (1 + 0.07/12)^(-12*4)) / (0.07/12)]

Solving for PMT, we get:

PMT = $543.39

Therefore, you need to deposit $543.39 each month to save $30,000 for a down payment on a home in four years.

You Want to Save $30,000 for a Down Payment on a Home