Suppose your bank account pays interest monthly with an EAR of 6%. How much interest will you earn each month? If you have no money in the bank today, how much will you need to save a of each month to accumulate $100, 000 in 10 years? To find the interest rate to be earned each month, we need to convert the EAR to a monthly rate. Equivalent n period discount rate = (1+r)^n -1, where "r" is basically the effective annual interest rate. Therefore, equivalent monthly rate = (1 + 6%)^1/12 - 1 0 4868% To answer this, we need to determine the amount "C" of the monthly payment that will have a future value of $100, 000 in 10 years, given a monthly interest rate of 0.4868%. We have to solve for the payment "C" in the FV of annuity formula using the equivalent monthly interest rate r = 0.4868%. and n = 12 times 10 = 120 months (since the interest rate is on monthly basis). FV of annuity = C times (1/r) times {(1 + r)^n -1} Therefore, $100, 000 = C times (1/0 4868%) times ((1 +0.4868%)^120 - 1} That is. C $100, 000/[(1/0.4868%) times ((1 + 0.4868%)^120 -1)] = $615 47 per month (approx)