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    If you want to save $25,000 for a down payment on a house and you have ten years to save this amount, how much would you need to save monthly to achieve this goal if the interest rate is 5% compounded monthly? What happens if you can increase your interest rate to 8%? Come up with your own example of compound interest different than the one in question.

    © BrainMass Inc. brainmass.com December 24, 2021, 10:22 pm ad1c9bdddf
    https://brainmass.com/business/business-math/business-math-468494

    SOLUTION This solution is FREE courtesy of BrainMass!

    In this problem, we are calculating the future value of an annuity.

    Let C represent the amount of money saved every month, then:
    FV=C/i*((1+i)^n-1)
    FV = $25000
    Time = 10 years
    Number of compounding periods n= 12*10=120 (compounding is done monthly)
    Interest rate = 5% per annum
    Interest rate for the compounding period (monthly) i= 5%/12

    Then we have:
    25000 = C/(5%/12)*((1+(5%/12))^120-1)
    25000=C*155.28
    C=$161 per month

    When interest rate is 8% per annum:
    25000 = C/(8%/12)*((1+(8%/12))^120-1)
    25000=C*182.95
    C=$136.65 per month

    My chosen interest rate 12%:
    25000 = C/(12%/12)*((1+(12%/12))^120-1)
    25000=C*230.04
    C=$108.68 per month

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 10:22 pm ad1c9bdddf>
    https://brainmass.com/business/business-math/business-math-468494

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