Problema Solution
Alex expects to graduate in 3.5 years and hopes to buy a new car then. He will need a 20% down payment, which amounts to $4800 for the car he wants. How much should he save now to have $4800 when he graduates if he can invest it at 8% compounded monthly?
Answer provided by our tutors
We need to find P = the principal
t = 3.5 years
r = 0.08 or 8% annual rate
m = 12 compounding period per year
i = 0.08/12 interest rate per period
n = 3.5*12 = 42 total number of compounding periods
A = $4,800 future value
A = P(1 + i)^n
P = A/((1 + i)^n)
P = 4800/((1 + 0.08/12)^42)
P = $3,631.13
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he should save and invest $3,631.13.