Go to http://bankrate.com/brm/calc/savecalc.asp. If you want to save $25,000 for a down payment on a house and you have ten years to save this amount, how much would you need to save monthly to achieve this goal if the interest rate is 5% compounded monthly. What happens if you can increase your interest rate to 8%? NOTE: Enter $100 for the “How much money can you spare for your first deposit or investment”.
The initial amount available for investment is $100. The interest rate is 5% compounded monthly.
Let the time required to save $25000 be x years. Use the formula A = P*(1 + r)^n where A is the final amount, P is the initial amount, r is the rate of interest and n is the number of terms. Here r = 0.5/12, P = 100 and A = 25000
`25000 = 100*(1 + 0.05/12)^(12*x)`
=> `250 = (1 + 0.05/12)^(12*x)`
=> `12*x = log(250)/(log(1 + 0.05/12))`
=> `x ~~ 1327.9/12`
=> `x ~~ 110.66` years
The required amount is accumulated in approximately 111 years.
To determine the time if the interest rate is 8% substitute r = 8/12