If a new college graduate wants a car costing $21,000, how much must be saved annually
over the next four years if the funds earn 5%?
Assuming money is deposited at the end of every month, and interest is compounded monthly, then the following annuity formula applies.
FV=21000=A(1+R+R²+R³+...+Rn-1)
=A(R^n-1)/(R-1)
or
A=FV*(R-1)/(R^n-1)
where
FV=future value=21000
A=monthly deposit (to be evaluated)
n=number of months (4*12=48)
R=1+monthly interest=1+0.05/12
Hint: it comes to be about $400 a month.