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5 October, 06:47

You and your new spouse each bring home $1400 each month after taxes and other payroll deductions. By living frugally, you intend to live on just one paycheck and save the other in a mutual fund yielding 7.83% compounded monthly. How long will it take to have enough for a 20% down payment on a $165,000 condo in the city? (Round your answer to two decimal places.)

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  1. 5 October, 06:54
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    22 months

    Explanation:

    The 20% down payment which is target savings = $165,000*20%=$33,000

    The are two paychecks which is $1,400 each

    monthly savings is one paycheck=$1,400

    rate of compounding is 7.83% yearly=7.83%/12=0.006525 monthly

    The number of months the savings will reach $33,000 can be computed using the nper formula in excel as shown below:

    =nper (rate, pmt,-pv, fv)

    rate is the monthly rate i, e 0.006525

    pmt is the monthly savings of $1,400

    pv is the present worth of the savings which is unknown

    fv is the future value of target savings which is $33,000

    =nper (0.006525,-1400,0,33000) = 22 months approximately
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