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Calculating the desired amonut of investment

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Jane Alexander currently has $6,750 in a money market account paying 6.35 percent annually. She plans to use this amount and her savings over the next 8 years to make a down payment on a house. She estimates that she will need $20,000 in 8 years.

How much should she invest in the money market account each year for the next 8 years to achieve her objective?

How much would she need as a lump sum payment to compound to $20,000 in 8 years at 6.35% annual rate?

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Solution Summary

Present value of annuity concept is widely used in determining the periodic savings/installments. This concept is used to determine the annual investment needed to meet the given financial objective. Calculations are carried out with the help of suitable formulas.

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How much should she invest in the money market account each year for the next 8 years to achieve her objective?

She deposits R amount per year.
Current ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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