want to buy a new sports car 3 years from now, and you plan to save $4,200 per year, beginning one year from today.You will deposit your savings in an account that pays 5.2% interest.How much will you have just after you make the 3rd deposit, 3 years from now?

Question

Quizplus · Accepted Answer

Since you are saving for three years and plan to make three equal deposits, you will be depositing $4,200 per year for three years, which is a total of $12,600.

Using the formula for future value of an annuity, we can calculate that the amount you will have after the 3rd deposit, 3 years from now, is:

FV = P * (((1 + r)^n - 1) / r)

Where:
P = Payment per period (in this case, $4,200 per year)
r = Interest rate per period (in this case, 5.2% per year, so 0.052 per year)
n = Number of periods (in this case, 3)

FV = $4,200 * (((1 + 0.052)^3 - 1) / 0.052) = $13,267.15

So you will have $13,267.15 just after you make the 3rd deposit, 3 years from now.

Therefore, the best choice is C.

Want to Buy a New Sports Car 3 Years from Now