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    classicdiva's Avatar
    classicdiva Posts: 1, Reputation: 1
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    #1

    Apr 15, 2007, 01:59 PM
    Stuck on Finance
    how much should I invest monthly if I start with an intitial deposit of $200 to pay a debt of $12,00 in 5 years at 5% compound interest monthly.

    Should I use the Present Value method or the Present Annuity method.

    I think I should deduct the $200 from the 12,000, then use the present value method to see how much I should invest monthly for the amount of $10,000 at 5% interest compounded monthly.

    Please let me know if I'm going in the right direction.

    Emma
    goldenbutterfly's Avatar
    goldenbutterfly Posts: 63, Reputation: 8
    Junior Member
    		  
    #2

    Apr 16, 2007, 06:54 AM
    Quote Originally Posted by classicdiva
    how much should I invest monthly if I start with an intitial deposit of $200 to pay a debt of $12,00 in 5 years at 5% compound interest monthly.

    Should I use the Present Value method or the Present Annuity method.

    I think I should deduct the $200 from the 12,000, then use the present value method to see how much I should invest monthly for the amount of $10,000 at 5% interest compounded monthly.

    Please let me know if I'm going in the right direction.

    Emma
    I would use future values for this problem.

    You have to get the FV of the initial 200 that you will be depositing. Subtract that from the 12,000 that you needed at the end of 5years. The difference that you'll get is the FV of the ordinary annuities that you will be depositing at the end of each month for 60 months.
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