The formula to calculate the monthly contribution needed to reach the desired amount is:
PMT = A / (((1 + r)^n - 1) / r)
Where:
PMT = monthly contribution
A = desired amount ($10,000)
r = monthly interest rate (3.9% annual rate divided by 12 months = 0.325% or 0.00325 as a decimal)
n = number of months (17)
Plugging in the values:
PMT = $10,000 / (((1 + 0.00325)^17 - 1) / 0.00325)
PMT = $10,000 / (((1.00325)^17 - 1) / 0.00325)
PMT = $10,000 / ((1.055465 - 1) / 0.00325)
PMT = $10,000 / (0.055465 / 0.00325)
PMT = $10,000 / 17.053846
PMT ≈ $587.42
Therefore, Omar needs to contribute approximately $587 every month to reach a total of $10,000 after 17 months.
Omar is saving money and plans on making monthly contributions into an account earning an annual interest rate of 3.9% compounded monthly. If Omar would like to end up with dollar sign, 10, comma, 000$10,000 after 17 months, how much does he need to contribute to the account every month, to the nearest dollar? Use the following formula to determine your answer.
1 answer