16 Nadia intends to get married in eight years' time. She estimates that the cost of the wedding will be RM20,000 then. She intends to save this amount by
making equal monthly deposits at the end of each month in a bank that pays
5% compounded monthly.
(a) How much will this monthly deposit be?
(b) After paying for two years, the estimated cost of the wedding has gone up
to RM30,000
(i) What should the new monthly deposits be?
(ii) Instead of making the additional monthly deposits, Nadia decides
to make a lump sum deposit RMX at the end of two years. Calculate
the value of X.

Nadia

a. Monthly deposit = RM169.86.

b. New monthly deposit = RM309.48

c. The value of X = RM22,393.57

Explanation:

a) Nadia will need to contribute RM169.86 at the end of each period to reach the future value of RM20,000.00.

FV (Future Value)RM19,999.99

PV (Present Value)RM13,417.11

N (Number of Periods)96.000

I/Y (Interest Rate)0.417%

PMT (Periodic Payment)RM169.86

Starting InvestmentRM0.00

Total PrincipalRM16,306.76

Total InterestRM3,693.23

b) Contribution after two years = RM169.86 * 24 = RM4,076.64

Additional contribution required = RM25,923.36 (RM30,000 - 4,076.64)

Nadia will need to start contributing RM309.48 at the end of each period after two years to reach the future value of RM25,923.36.

FV (Future Value)RM25,923.34

PV (Present Value)RM19,216.00

N (Number of Periods)72.000

I/Y (Interest Rate)0.417%

PMT (Periodic Payment)RM309.48

Starting InvestmentRM0.00

Total PrincipalRM22,282.27

Total InterestRM3,641.08

c) Nadia will need to invest RM22,393.57 at the beginning to reach the future value of RM25,923.36.

FV (Future Value)RM25,923.36

PV (Present Value)RM22,393.57

N (Number of Periods)3.000

I/Y (Interest Rate)5.000%

PMT (Periodic Payment)RM0.00

Starting InvestmentRM22,393.57

Total PrincipalRM22,393.57

Total InterestRM3,529.79

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