Question

In: Finance

Amelia currently has $1,000 in an account with an annual rate of return of 4.3%. She...

Amelia currently has $1,000 in an account with an annual rate of return of 4.3%. She wants to have $3000 for a trip to Canada when she graduates in 4 years. How much will she have to save each month to afford her trip?

Expert Solution

Information provided:

Future value= $3,000

Time= 4 years*12= 48 months

Interest rate= 4.3%/12= 0.3583% per month

The question is solved in two parts. First, the future value of $1,000 saved need to be calculated and secondly, the amount of monthly savings needs to be calculated.

The future value is calculated by entering the below in a financial calculator:

PV= -1,000

N= 4

I/Y= 4.3

Press the CPT key and FV to compute the future value.

The value obtained is 1,183.42.

Therefore, the value of $1,000 saved at the end of four years is $1,183.42.

The monthly savings is calculated by entering the below in a financial calculator:

FV= 3,000 - 1,183.42= $1,816.58.

N= 48

I/Y= 0.3583

Press the CPT key and PMT to compute the monthly savings.

The value obtained is 34.7516.

Therefore, she will have to save $34.75 every month for 4 years to afford the trip.

In case of any query, kindly comment on the solution.

jeff jeffy answered 6 months ago

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