Marcy wants to buy a new car in one year. She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car. How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly?

Question

Marcy wants to buy a new car in one year.  She currently has $1,500 in the bank. Marcy plans to save $250 a month towards the car.  How much will Marcy have for a down payment assuming her bank pays 6% compounded monthly? ​

Quizplus · Accepted Answer

Marcy will save $250 a month for 12 months, totaling $3,000. With her initial $1,500, she has $4,500 before interest. The formula for compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($4,500), r is the annual interest rate (6%, or 0.06), n is the number of times that interest is compounded per year (12), and t is the time the money is invested for in years (1). Plugging in the values: A = $4,500(1 + 0.06/12)^(12*1) = $4,676 approximately.

Marcy Wants to Buy a New Car in One Year