Question

In: Finance

1. You wish to save up to $135,000 so you can afford to deposit for a...

1. You wish to save up to $135,000 so you can afford to deposit for a house. You plan to set aside $900 at the start of each fortnight. At the moment, your bank is paying interest at a rate of 3.5% p.a. How many years will it take to reach your target deposit amount? Express your answer in years, to four decimal places (do not type the text ‘years’ in your answer).

Please include the workings and the formula.

Solutions

Expert Solution

Required Future value (F) = $135,000

Periodic payment (A) = $900

Period = Fortnight = 2 weeks

1 Year = 52 weeks = 26 fortnight

No. of period in a year = 26

No. of period to reach target = n

Annual interest rate = 3.50%

Interest rate each period = 0.035/26 = 0.0013461538461

Type of Annuity = Annuity Due

We can compute the value of "n" with Annuity due Future value formula:

putting the values

taking log both side:

Thus, No. of years(T) to reach the Target:

We can also calculate this using excel or financial calculator:

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago

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