Suppose that you want to avoid paying interest and decide you'll only buy the furniture when you have the money to pay for it. An annuity is basically the opposite of a fixed-installment loan: you deposit a fixed amount each month and receive interest based on the total amount that's been saved. The future value formula is: 12t r 1374 [(1 - 1) ™-1-] 12M 1+ 12 A = where è is the regular monthly payment, › is the annual interest rate in decimal form, and is the term of the annuity in years. If you chose an annuity with a term of two years at 4.8% and a monthly payment of $120, the future value would be $3016.45. Recalculate the future value amount if you're willing to raise your monthly payment $20 per month. Round your answer to the nearest cent. The future value would be $ X
Suppose that you want to avoid paying interest and decide you'll only buy the furniture when you have the money to pay for it. An annuity is basically the opposite of a fixed-installment loan: you deposit a fixed amount each month and receive interest based on the total amount that's been saved. The future value formula is: 12t r 1374 [(1 - 1) ™-1-] 12M 1+ 12 A = where è is the regular monthly payment, › is the annual interest rate in decimal form, and is the term of the annuity in years. If you chose an annuity with a term of two years at 4.8% and a monthly payment of $120, the future value would be $3016.45. Recalculate the future value amount if you're willing to raise your monthly payment $20 per month. Round your answer to the nearest cent. The future value would be $ X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### How to Avoid Paying Interest and Save for Big Purchases Using An Annuity
#### Concept Overview:
Suppose that you want to avoid paying interest and decide you'll only buy the furniture when you have the money to pay for it. An annuity is basically the opposite of a fixed-installment loan: you deposit a fixed amount each month and receive interest based on the total amount that's been saved.
#### Future Value Formula:
The future value formula for an annuity is:
\[ A = \frac{12M \left[ \left(1 + \frac{r}{12} \right)^{12t} - 1 \right]}{r} \]
where:
- \( M \) is the regular monthly payment,
- \( r \) is the annual interest rate in decimal form,
- \( t \) is the term of the annuity in years.
#### Example Calculation:
If you chose an annuity with a term of two years at 4.8% and a monthly payment of $120, the future value would be $3,016.45.
#### Activity:
Recalculate the future value amount if you're willing to raise your monthly payment by $20 per month. Round your answer to the nearest cent.
The formula to input your calculated future value is shown in the provided interface below.
**Input Interface:**
- A box labeled "The future value would be $_____" for entering your calculated amount.
Use this information to plan your savings effectively and avoid unnecessary interest payments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faf54cc92-fe70-42ec-a5a5-6c03b8447a69%2F47ac0437-456a-4b80-8bda-f7f015cbab5d%2Fnrlvmkg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### How to Avoid Paying Interest and Save for Big Purchases Using An Annuity
#### Concept Overview:
Suppose that you want to avoid paying interest and decide you'll only buy the furniture when you have the money to pay for it. An annuity is basically the opposite of a fixed-installment loan: you deposit a fixed amount each month and receive interest based on the total amount that's been saved.
#### Future Value Formula:
The future value formula for an annuity is:
\[ A = \frac{12M \left[ \left(1 + \frac{r}{12} \right)^{12t} - 1 \right]}{r} \]
where:
- \( M \) is the regular monthly payment,
- \( r \) is the annual interest rate in decimal form,
- \( t \) is the term of the annuity in years.
#### Example Calculation:
If you chose an annuity with a term of two years at 4.8% and a monthly payment of $120, the future value would be $3,016.45.
#### Activity:
Recalculate the future value amount if you're willing to raise your monthly payment by $20 per month. Round your answer to the nearest cent.
The formula to input your calculated future value is shown in the provided interface below.
**Input Interface:**
- A box labeled "The future value would be $_____" for entering your calculated amount.
Use this information to plan your savings effectively and avoid unnecessary interest payments.
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