Problema Solution
You want to purchase a new car in 3 years and you anticipate the cost of the car to be $25,000. You are given an investment plan with a fixed APR of 5.3% if you make regular monthly deposits. How much should you deposit at the end of each month to reach your goal of $25,000 in 3 years?
Answer provided by our tutors
Sinking Fund
S = R[((1 + i)^n - 1)/i]
where
S = $25,000 is the future value;
R is the periodic payment that we need to find;
i = 0.053/12 is the interest rate per period (since it is monthly deposit);
n = 3*12 = 36 is the number of periods (since it is monthly deposit)
R = S/[((1 + i)^n - 1)/i]
R = Si/((1 + i)^n - 1)
R = (25000*(0.053/12))/((1 + 0.053/12)^36 - 1)
R = $642.23
each month i should deposit $642.23 to reach the goal of $25,000 in 3 years.