You want to save $10 000 toward the down payment on a house in five years.If you can earn 8 percent (compounded monthly),approximately how much should you save each month to reach this short-term goal?

Question

Quizplus · Accepted Answer

We can use the following formula to find out how much should be saved each month:

P = (A / ((1+r)^n - 1)) x (1+r)

Where,
P = Monthly payment
A = Amount to be saved
r = Rate of interest per month (8% / 12)
n = Number of months (5 years x 12 months)

Plugging in the values, we get:

P = ($10,000 / ((1+0.08/12)^(5*12) - 1)) x (1+0.08/12) 
P = $135.78

Rounding up to the nearest dollar gives us $136, which is Option B. Therefore, you should save $136 every month for 5 years to reach your goal of $10,000.

You Want to Save $10 000 Toward the Down Payment