If you wish to renovate your house in about 4 years and you need a budget of say $100,000

If you wish to renovate your house in about 4 years and you need a budget of say $100,000, how much do you need to save in a recurring deposit scheme that gives you the compound interest of 4% per annum (compounded monthly) to yield the amount required after 4 years? If the interest is compounded on a daily basis, would there be any difference in your saving regime?

Expert Solution

If the savings in the recurring deposit scheme is made every month, then the amount saved is found using future value of annuity equation

Amount to be saved each month = $ 1924.57

If the interest rate is compounded daily, then the first step is to find monthly interest rate.

The amount to be saved each month is found as follows: -

Amount to be saved each month = $ 1924.26

There is only a very small difference in the saving regime and such a small difference would not make a huge impact in the amount saved.

Amount to be saved each month = $ 1924.57

Amount to be saved each month = $ 1924.26

Junaid answered 2 years ago

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