Question

You expect that you will need to replace your furnace in 6 years at a cost of $16,939. How

much must you save, each month for 29 months, starting next month (the same amount

each month) if your savings account pays 2.81% APR (compounded monthly)?

Answer 1

First, we calculate the present value of the furnace

PV of the furnace = 16,939/((1+0.0281/12)^(12*6))

PV of the furnace = 14313.68

Using a financial calculator

FV = 0

PV = -14313.68

N = 29

I/Y = 2.81/12

cpt PMT , we get PMT = 511.10

Hence, you must you save, each month for 29 months $511.10

Hence, after 30 years $1264328.52 is accumulated

Set the mode to BGN mode => 2nd BGN => 2nd SET => 2nd QUIT