Thomas wants to save up $20,000 by four years from now by making monthly deposit

Question

Thomas wants to save up $20,000 by four years from now by making monthly deposits of $395 at most.
a. Find the effective rate of interest that Thomas must obtain to meet his plan. State whether this would be the maximum or minimum rate of interest he must obtain to meet his targets.

b. Thomas has found a savings fund that pays interest of 2.62 percent compounded semiannually. He will make monthly deposits of $395 and he can make a deposit only once a month on the agreed payment date. Find the number of deposits Thomas must make, including a possible partial final deposit, to reach his target amount.

c. If Thomas makes the number of deposits you calculated in part (b), calculate the amount of the final deposit he must make to reach his target amount of savings.

Explanation / Answer

First $395 * 48 = $18,960 $20,000/48==$416.66 must be met monthly $395 * what percent = $416.66? $416.66/$395 -100%= 5.48% a. 5.48% minimum rate of interest b. approximately 4 years. Calculator http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php#results c.about $395 Hopefully this answered your question, best of luck.

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