A local furniture store is advertising a deal in which you buy a $3,500 living room set with three years before you need to make payments (no interest is incurred). How much would you have to deposit each month in a savings account earning 3.5 percent APR, compounded monthly, to be able to pay the $3,500 bill in three years?
A) $92.35
B) $108.13
C) $112.86
D) $121.97

Question

Quizplus · Accepted Answer

To calculate the monthly deposit required to save up $3,500 in three years with an account that has a 3.5% APR compounded monthly, we use the future value of a series formula: $FV = P \times \frac{(1 + r)^n - 1}{r}$, where $FV$ is the future value ($3,500), $P$ is the monthly payment, $r$ is the monthly interest rate (3.5% APR / 12 months = 0.002916), and $n$ is the total number of payments (3 years * 12 months = 36). Rearranging the formula to solve for $P$ gives us $P = FV \times \frac{r}{(1 + r)^n - 1}$. Plugging in the values gives $P = 3500 \times \frac{0.002916}{(1 + 0.002916)^{36} - 1}$, which calculates to approximately $92.35.

A Local Furniture Store Is Advertising a Deal in Which