Question

Mustafa is saving to buy a house. His goal is $850000. The interest rate is 3% compounded quarterly, and his plan is to make deposits of $P at the end of every month for 5 years.

a) What is the effective monthly rate?

b) What is $P? After 1 years, the interest rate changes to 4%.

c) How much money has he saved so far?

d) If he keeps on making the same monthly deposit, how much money will he have saved after 5 years?

e) If he still wants to save exactly $850000 by the end of 5 years, what should his monthly deposit be?

(Don't forget to include the future value of the money from part c)!)

Answer 1

	FV	$ 850,000.00
	Interest rate	3%
a)	Interest rate Monthly	0.24938%
	Period = 5*12=	60
b)	Payment per month	$13,150.86
	Period = 1*12 =	12.00
c)	FV AFTER 1 YEARS	$159,992.86
	Interest rate	4%
	Interest rate Monthly	0.33223%
	Period = 4*12=	48
d)	FV AFTER 5 YEARS	$870,735.85
e)	Monthly Deposit	$12,751.67

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