Economics……………………………..?

underdog3: Economics……………………………..?
An engineer planning to purchase a new pickup truck at the price of 970 dollars wants to have ½ of the cost of the truck as a down payment before purchasing it. She wants to buy the truck (at the price 970) 7 years from now and plans to begin saving by depositing 45 into a savings account one year from now, and then increasing the deposit each year by a constant amount. If the account earns interest at 4.53% per year, by what amount must she increase her deposit each year?

Answers and Views:

Answer by Steve
Time Value of Money is usually covered in Finance or Financial Accounting rather than Econ…

She would deposit $ 45.00 in year 1 and $ 63.42 in each of years 2-7.

The first payment is a year from now so configure the calculator in standard annuity due mode.

Then:

On a HP 12 C Calculator:
45(PMT) 4.53(i) 7(n) (FV) = $ 361.19

On a TI BA2+
45(PMT) 4.53(i/y) 7(n)(CPT) (FV) = $ 361.19

To figure the constant amount that needs to be added in years 2-7 to equal $ 485 – $ 361.19 = 123.81.
The down payment she wants to make is 50% of the purchase price of $ 970.00 = $ 485.00

So…….

On a HP 12 C Calculator:
123.81(FV) 4.53(i)6(n)(PMT) = $ 18.42

On a TI BA 2+
123.81(FV) 4.53(i/y)6(n)(CPT)(PMT) = $ 18.42

$ 45.00 + $ 18.42 = $ 63.42