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A family needs to save $120,000 in 11 years. They currently have $10,000 in an investment...

A family needs to save $120,000 in 11 years. They currently have $10,000 in an investment fund that incurs interest of 8% per annum, which will be there for 11 years. They also want to make monthly payments to another investment that pays interest at 12% per annum, compounding annual. What is the monthly payment the family need to make to save $120,000 in 11 years?

Expert Solution

The future value of their current savings:

FV = PV * (1 + r)^n

FV = 10,000 * (1 + 0.08)^11

FV = 23,316.3899705461

Amount to save amount in 11 years = 120,000 - 23,316.3899705461

Amount to save amount in 11 years = 96,683.6100294539

FV = 96,683.6100294539

n = 11*12 = 132 monthly payments

r = (1 + 0.12)^(1/12) -1

r = 0.009488792935 per month

The family needs to make a monthly payment of $370.14 to save $120,000 in 11 years

jeff jeffy answered 2 years ago

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