How much do you need to deposit each month for three years into a savings account that pays 6.5% APR in order to buy a car that costs $25,000?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity:

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

where FV is the future value, PMT is the monthly payment, r is the monthly interest rate (6.5%/12 = 0.00542), and n is the number of months (36).

Rearranging the formula to solve for PMT:

PMT = FV / (((1 + r)^n - 1) / r)

Plugging in the values:

PMT = 25,000 / (((1 + 0.00542)^36 - 1) / 0.00542) = $630.81 (rounded to the nearest cent)

Therefore, you need to deposit $630.81 each month for three years to buy the car. The answer is B.

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