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toddm027

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Feb 1, 2011
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You can afford monthly depostis of $110.00 into an account that pays 4.2% compounded monthly interest. How long will it be until you have $10,900.00 to buy a boat?
The answer I am coming up with is 85.22 months or 7.1 years. Could you let me know if this is correct. below is the formula I have used....
•Future Value of a Series Formula: FV = PMT * ( ( (1 + i)n - 1) / i )


any help would be appreciated.
Thanks,
Todd
 
1) You will have to decide where your deposits are in relation to the final value. Did you make a payment ON the date that the account value reached the goal? If so, then you have it right, but that is a rather odd way to go about it. It might be the desired result.

2) Thinking on the last payment is the way to decide. Does it collect interest or does it not? You have the "does not" version.

3) I almost never recommend memorizing or using formulas for this sort of thing. If you can learn "Basic Principles", you'll be much better off in the long run. Then you can SEE the difference.
 
This is exactly how the question was on my homework assignment. How would you answer it?
 
Your answer of ~85.22 months is correct. Is that all you're asking?
 
It is one possible correct answer. It requires assumptions. Stating the assumptions is the way to go, not just pulling out a formula and hoping.

You did find a good formula. Can you derive it from basic principles?
 
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