Question

rate is 12% per annum compounded monthly.

Your answers should be correct to 2 places after the decimal point.

Problem 11: Betty and Bob establish a “sinking fund” to buy a new computer in 2 years. They deposit equal amounts at the beginning of each month. If they must accumulate $2,000 then, what are the monthly payments?

The payments are ________________

Answer 1

Information provided:

Future value (PV)= $2,000

Time (N)= 2 years*12 = 24 months

Monthly interest rate (I/Y)= 12%/12 = 1%

The question is concerning finding the amount of annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

Enter the below in a financial calculator in BGN mpode to compute the amount of monthly payment:

FV= 2,000

N= 24

I/Y= 1

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 73.41.

Thereby, the monthly payment is $73.41.

In case of any query, kindly comment on the solution.