You are saving money to buy a car.If you save $300 per month starting one month from now at an interest rate of 4%,how much will you be able to spend on the car after saving for 4 years?

Question

Quizplus · Accepted Answer

Using the formula for future value of an annuity,

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

where PMT is the monthly savings amount, r is the monthly interest rate (4% / 12 = 0.00333), and n is the number of months (4 years x 12 months = 48).

FV = (300 x [(1 + 0.00333)^48 - 1]) / 0.00333 = $15,587.88

Therefore, you will be able to spend $15,587.88 on the car after saving for 4 years.

You Are Saving Money to Buy a Car