Question

Ali is planning for his wedding with his fiancé Aliah. They believe they need RM30,000 for the ceremony to be held exactly three years from today. Aliah is planning to start depositing RM300 per month for the event beginning next month in a unit trust that would provide her 5% return per year on average. If Ali were to invest in another unit trust investment that will provide him 7% return per annum, how much should he invest every month beginning today to ensure that their savings will be enough in three years’ time?

Answer 1

We know that

Future value of annuity =p×((1+r)^n*t -1)/r

Wher r is equal to rate per period

Now dipositing 300 for 36 months @5% per annum

We will have =

300×((1+0.05/12)^36 - 1)/(0.05/12)= 11626

Now we need 30000-11626 = 18374

Now using the formula of annuity due as in this case payment will start today as given in q with int @7 % to find the p i.e periodic payment with future value18374

Fv of annuity due= p×((1+r)^t-1)×(1+r)/r

18374=

p×((1+0.07/12)^36 - 1)×(1+0.07/12)/(0.007/12)

P = 457.49