Question

To reach a savings goal of $1000 in 10 years at 10% interest with one interest payment a year how much must I save yearly?

Answer to 2 decimal places.

Assume initial savings is 0.

Answer 1

This is a case of compound interest.

The final amount is given by:

A = P * [ 1 + (r/n) ] ^ ^(n*t)

where,

A = Final Amount

P = Principal (initial amount)

r = Interest rate

n = number of compounding = 1 for annual

Case 1:

Assumption:

First saving is done on 1st day

Concept:

- Saving of 1 st year will give interest for next 10 years

- - Saving of 2nd year will give interest for next 9 years

and so on

Using Excel goal seek

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CASE 2:

Assumption:

First saving is on end of year 1

Concept:

- Saving of 1 st year will give interest for next 9 years

- - Saving of 2nd year will give interest for next 8 years

and so on

Similar to above: