Problema Solution
Mathew knows that he will need to buy a new car in 4 years. The car will cost $15,000 by then. How much should he invest now at 10%, compounded quarterly, so that he will have enough to buy a new car?
Answer provided by our tutors
let
P = the principal (the amount to invest)
r = 0.10 or 10% annual interest rate
t = 4 years
n = 4*t = 4*4 = 16 compounding periods (the account is compounded quarterly)
A = $15,000 future value
A = P(1 + r/4)^n
P = A/((1 + r/4)^n)
P = 15000/((1 + 0.10/4)^16)
P = $10,104.37
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Mathew should invest $10,104.37.