A local furniture store is advertising a deal in which you buy a $3,800 dining r

Question

A local furniture store is advertising a deal in which you buy a $3,800 dining room set and do not need to pay for two years (no interest cost is incurred

How much money would you have to deposit now in a savings account earning 6 percent APR, compounded monthly, to pay the $3,800 bill in two years? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Present Value $__________

How much would you have to deposit in the savings account each month to be able to pay the bill? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Annuity payment $_________per month

Explanation / Answer

Future Value = 3800 ; n= 2 years * 12 = 24 months ; Interest = 6/12 = 0.5%

Present Value = 3800 / ( 1+0.005)^24 = 3371.31

For calculating Annuity we could use the FVIFA table,

Let monthly annuity be X

So, X * FVIFA(24 , 0.5%) = 3800

Or X = 3800 / 25.432 = 149.42

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