Sam got a job at the Brick. He plans to save $500 every month for 3 years to buy a car. The savings account earns 2.25% compounded monthly. If he puts the money in his savings account at the beginning of each month, what will be the present value of the balance in the account at the end of the three-year term?

Question

Quizplus · Accepted Answer

The correct answer is B because the present value of the balance in the account at the end of the three-year term is $17,425.42. This is calculated using the formula for the present value of an annuity, which is:PV = PMT * [1 - (1 + r)^-nt] / rwhere:PV is the present valuePMT is the monthly paymentr is the monthly interest raten is the number of monthst is the number of yearsIn this case, the monthly payment is $500, the monthly interest rate is 2.25% / 12 = 0.001875, the number of months is 3 * 12 = 36, and the number of years is 3. Plugging these values into the formula, we get:PV = 500 * [1 - (1 + 0.001875)^-36] / 0.001875PV = 500 * [1 - 0.862609] / 0.001875PV = 500 * 0.137391 / 0.001875PV = 17,425.42

Sam Got a Job at the Brick