Give an example of a situation in which you might want to solve the savings plan formula to find the​ payments, PMT, required to achieve some goal.
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Part 1
Choose the correct answer below.
A.
An employee would like to retire 25 years from now and have a retirement fund from which she can draw an income of​ $50,000 per​ year, forever.
B.
A parent wants to build a​ $100,000 college fund in 18 years by making​ regular, end-of-month deposits.
C.
A banker invests​ $3,000 in a mutual fund and wants to calculate the monthly payments in order to earn​ $8,400 after four years.
D.
A teenager wants to buys a car by depositing a lump sum of money today and letting it grow through the power of compound interest.

The correct answer is:

**B. A parent wants to build a​ $100,000 college fund in 18 years by making​ regular, end-of-month deposits.**

### Explanation:
This is a situation where someone is planning to save a specific amount of money over time by making regular deposits. In this case, the goal is to have $100,000 in 18 years, and the regular payments (PMT) are made monthly. The savings plan formula can be used to calculate how much the parent needs to deposit each month to reach the goal.

### Why the other options are incorrect:
- **A.** Involves an annuity that pays out $50,000 per year indefinitely, which relates more to a perpetuity than to a savings plan where you're accumulating a specific amount.
- **C.** Describes a situation where the person already made an initial investment and is not making regular payments to achieve the goal.
- **D.** Involves a lump sum investment rather than regular payments, so it does not fit the savings plan formula context.

Would you like more details about how the savings plan formula works?

### 5 Related Questions:
1. What is the formula for calculating the required monthly payment in a savings plan?
2. How do interest rates affect the monthly payment required in a savings plan?
3. What is the difference between a lump-sum investment and a savings plan with regular payments?
4. How does the number of years impact the total savings in a savings plan?
5. What factors should you consider when choosing the frequency of deposits (monthly, yearly, etc.) in a savings plan?

**Tip:** When using the savings plan formula, always ensure that the interest rate is converted to match the payment frequency (e.g., monthly, quarterly).

Give an example of a situation in which you might want to solve the savings plan formula to find the payments, PMT, required to achieve some goal. Choose the correct answer below.
A. An employee would like to retire 25 years from now and have a retirement fund from which she can draw an income of $50,000 per year, forever.
B. A parent wants to build a $100,000 college fund in 18 years by making regular, end-of-month deposits.
C. A banker invests $3,000 in a mutual fund and wants to calculate the monthly payments in order to earn $8,400 after four years.
D. A teenager wants to buy a car by depositing a lump sum of money today and letting it grow through the power of compound interest.

Learn how to use the savings plan formula to calculate the monthly payments needed to build a $100,000 college fund over 18 years. This example explores key financial concepts like compound interest and regular savings deposits. Suitable for high school students and individuals planning long-term financial goals.

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