Question

1. If your salary is $ 1,500 per month and you save $ 500 per month, your savings rate is

2. How much money should you invest today at 8% interest to get it to grow to $ 15,000 years?

3. What annual interest rate will make $ 500 increase to $ 1,948 in 12 years?

10 years

Answer 1

1. If you salary is $1500 and you save $500 every month

You are saving 1/3rd that is 33.33333% [ 500/ 1500 * 100]

FOrmula for saving rate = [Savings / Total Salary] * 100  

You can write it as     %

2. Given Fv = 15000, Period 10 years, rate 8% Calculate PV

PV = FV / (1+r)ⁿ

= 15000 / (1.08)¹⁰

= 15000 / 2.15892500

= 6947.90 approx

$6947.90 approx needed to deposit today for 10 year @ 8% to get $15000.

3. Calculate rate of interest, PV= 500, FV = 1948, No fo years =12

PV = FV / (1+r)ⁿ

500 = 1948 / (1+r)¹²

(1+r)¹² = 1948 / 500

(1+r)¹² = 3.896

1+r = 1.120000

r= 1.12 - 1

r =12%

Annual Interest rate = 12%