Howard is saving for a holiday. He deposits a fixed amount every month in a bank account with an EAR of 14.7%. If this account pays interest every month then how much should he save from each monthly paycheck in order to have $14,000 in the account in four years' time?
A) $176
B) $308
C) $220
D) $352

Question

Quizplus · Accepted Answer

C) First calculate the APR using an EAR of 14.7% and monthly compounding, which comes to 13.7937%. Then using a periodic rate of 13.7937/12, calculate the payment over 48 months that gives a future value (FV) of $14,000, which is $220.

Howard Is Saving for a Holiday