You currently have $4000 saved towards the purchase of a new car. You want to be able to buy a car for $15000 in 4 years. Your money is earning 5% compounded yearly. What is the size of your yearly deposit?
A) $928.05
B) $2320.12
C) $2552.13
D) $2352.13
E) $2000.99

Question

Quizplus · Accepted Answer

We will use the formula:

Future Value = Present Value (1+r)^n + Payment [(1+r)^n - 1] / r

where 
Future value = $15000 
Present value = $4000 
r = 5% 
n = 4

Substituting the values, we get:

15000 = 4000 (1 + 0.05)^4 + Payment [(1+0.05)^4 - 1] / 0.05

Solving for Payment, we get:

Payment = (15000 - 4000 (1 + 0.05)^4) / [(1+0.05)^4 - 1] / 0.05

Payment = $2352.13 (rounded to the nearest cent)

Therefore, the yearly deposit you need to make is $2352.13.

Option D is the correct answer.

You Currently Have $4000 Saved Towards the Purchase of a New