You want to purchase a new car in 5 years and expect the car to cost $61,000.

Question

You want to purchase a new car in 5 years and expect the car to cost $61,000. Your bank offers a plan with a guaranteed APR of 5.5 % if you make regular monthly deposits. How much should you deposit each month to end up with $61,000 in 55 years?

Answer 1

The small correction to the previous answer. By paying 885.59 a month you'll have enough money BY THE END of 59th month (making 59 payments only). If your goal is to be able to buy the car IN 5 years, i.e. by the end of the 60th month (making 60 payments) the formula should be

 

A = p *(1 + r/n) [(1 + r/n)^n*y - 1] / (r/n)

 

and the required monthly payment should be 881.55

Answer 2

Hi Abe, there is a complex formula for finding the monthly payment when the amount, rate, and time are know.

 

The formula is:

 

A = p * [(1 + r/n)^n*y - 1] / (r/n)

 

Where A is the future amount, $61,000.

 

p is the needed payment amount.

 

r is the rate, 5.5%.

 

n is the number of payments per year, 12.

 

y is the number of years, 5.

 

You need to solve this for p.

 

p = 61000 * (.055 / 12) / ((1 + .055/12)⁶⁰ - 1)

 

p = 885.59

 

You would have to deposit $885.59 per month for five years to have $61,000 in the bank to buy the car.

 

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