In Chapter 1 of the text we looked at calculating a monthly payment for a loan.
ID: 2808269 • Letter: I
Question
In Chapter 1 of the text we looked at calculating a monthly payment for a loan. A related formu accruing when regular payments are made into an interest bearing account- often called the Savings Plan formula. (A is the accrued amount after years of making regular payment, PMT, into an account at interest rate, r8, comp times each year.) A(t) PMT (1r/N)-1)/(r/N) PMT ((TN)A(Nt)- 1)/(r/N) The second version is essentilly in the form used in Excel Suppose you want to buy a car and have decided that you can save $100 a month. Using information from an internet source determine the current interest rate on savings accounts and use the information to answer the following: 1. How much money will you have saved in a year's time 2. How much will be interest? 3. Why wouldn't a tinear model work here?Explanation / Answer
1… PMT= 100 r= 1.85%p.a. ie.---r/n 0.0185/12= 0.001542 p.m. n= 12*1= 12 Money saved in a Year's time Using the Future Value of annuity formula, as given in the Text, FV=100*(1.001542^12-1)/0.001542= 1210.23 2… Interest amount= 1210.23-(100*12)= 10.23 3.. Linear model will not work here, as a $ 100 is saved every month & it is not one single amount of deposit that grows in compound interest.