Homework SourseYou want to buy a house within 3 years and you currently sav
You want to buy a house within 3 years, and you currently saving for down payment, you plan to save $300 at the end of each month, and you anticipate that your savings will increase by 10% annually thereafter. Your expected annual return during the saving period is 6%. How much will you have for a down payment at the end of year 3?
Solution
I will have have $1,054.24 at the end of three years for down payment.
| During the first year | |||
| Monthly saving | 300 | ||
| Rate of interest | 6% p.a. | ||
| Value at the end of the year 8* | =300 (1+0.06/12)^12 | ||
| = | 318.50 | ||
| During the second year | |||
| Monthly saving (10% increase) | 330 | ||
| Rate of interest | 6% p.a. | ||
| Value at the end of the year 8* | =330 (1+0.06/12)^12 | ||
| = | 350.35 | ||
| During the third year | |||
| Monthly saving (10% increase) | 363 | ||
| Rate of interest | 6% p.a. | ||
| Value at the end of the year 8* | =363 (1+0.06/12)^12 | ||
| = | 385.39 | ||
| Fund available after three years | =318.50+350.35+385.39 | ||
| = | 1054.24 | ||
| * Since it is a monthly deposit, we have to consider | |||
| rate of interest per month (6 % / 12) |
