Results 1 to 3 of 3

Math Help - Finance

  1. #1
    Newbie
    Joined
    Mar 2006
    Posts
    6

    Finance

    Two people want to take a trip to Nepal in two years. They set up a sinking fund at 6% interest. What will the monthly deposit be if they want the funds value to be 20,000 in two years. The account is an ordinary annuity.
    Follow Math Help Forum on Facebook and Google+

  2. #2
    sony
    Guest

    Accumulation of annuity

    Two people want to take a trip to Nepal in two years. They set up a sinking fund at 6% interest. What will the monthly deposit be if they want the funds value to be 20,000 in two years. The account is an ordinary annuity.
    First off this question is a little ambiguous as it does not state the type of interest rate, are we working with 6% per year nominal compounding monthly or 6% per year effective. I will assume that we are working with 6% per year effective, if this is the wrong assumption please replace the interest rate with i = 0.06/12 = 0.005 (i.e half a per cent). I will also assume that the first payment is made at time 0 (i.e. payments are made in advance)

    The way i will approach this problem is to first find the present value of the 20000 and then equate that to the present value of the annuity. I will work in periods of one month.

    Let i be the effective rate of interest per month: i = (1.06)^(1/12) - 1 = 0.04867551

    Hence the present value of the 20000 is = 20000(1+i)^(-24) = 17799.9288

    You should be aware of the formula for the present value of an annuity payable in advance, that is: Installment * (1 - (1+i)^(-n)) / (i/(1+i)) where n is the number of installments.

    now equate the present value of the annuity with the present value of the 20000 and solve for the installment:

    17799.9288 = Installment * (1 - (1+i)^(-24)) / (i/(1+i)) = Installment * 22.70937022
    => Installment = 783.8142856

    I hope this is helpful to you, please let me know if I should change my assumptions and revise the post accordingly.
    Follow Math Help Forum on Facebook and Google+

  3. #3
    Super Member

    Joined
    May 2006
    From
    Lexington, MA (USA)
    Posts
    11,678
    Thanks
    611
    Hello, d.darbyshire!

    Two people want to take a trip to Nepal in two years.
    They set up a sinking fund at 6% interest.
    What will the monthly deposit be if they want the funds value to be $20,000 in two years?
    The account is an ordinary annuity.

    You are expected to know the Annuity Formula:
    Code:
                  (1 + i)^n - 1
          A  =  D -------------
                      i

    where D is the periodic deposit, i is the periodic interest rate,
    . . n is the number of periods, and A is the final value.

    Your problem has: .i = 0.005, n = 24, and A = 20,000.

    Solve for D.

    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Finance
    Posted in the Business Math Forum
    Replies: 4
    Last Post: October 1st 2011, 09:00 AM
  2. Help on Finance!
    Posted in the Business Math Forum
    Replies: 4
    Last Post: May 11th 2011, 12:47 PM
  3. Finance Help
    Posted in the Business Math Forum
    Replies: 1
    Last Post: November 3rd 2009, 07:33 AM
  4. Finance
    Posted in the Math Topics Forum
    Replies: 3
    Last Post: January 12th 2007, 04:19 PM
  5. finance
    Posted in the Business Math Forum
    Replies: 1
    Last Post: December 9th 2006, 04:11 PM

Search Tags


/mathhelpforum @mathhelpforum