Question

Your mother committed to present you with a car as a wedding gift after 5 years from now. The car will cost Tk.14 lakh at that time. Your mother is planning to accumulate the fund by depositing an equal amount of money in a bank account bearing 13% interest. How much should your mother deposit in the bank account? Assume that a deposit should be made at the beginning of the period. The deposit should be made monthly.

Answer 1

P=a/{[(1+r)ⁿ]-1}/[r(1+r)ⁿ]

a= the amount of the loan

P=monthly payment

r=interest rate

n=payment period.

a=14

r=0.0108 (13% annual rate—expressed as 0.13—divided by 12 monthly payments per year

n=60 (12 monthly payments per year times 5 years) 

P=14/{[(1+0.0108)⁶⁰]-1}/[0.0108(1+0.0108)⁶⁰]

$=14/(0.90508/0.2057)$

$=14/44$

$=0.318$

$Tk 0.318 lakh$