Mr. & Mrs. Corey are newlyweds and want to purchase a home, but they need a down payment of $10,000. If they want to buy their home in 2 years, how much should they save each month in their savings account that pays 3% per annum compounded monthly?
Suppose they save x dollars each month.
The annual rate of this money is 3%, so the monthly rate is
3%/12=0.03/12=0.0025. Since the money is compounded monthly, so we should use the monthly rate 0.0025
They will buy their home in 2 ...
This shows how much needs to be saved to reach a given future value.