Question

Suppose you'd like to save enough money to pay cash for your next car. The goal is to save an extra $28,000 over the next 6 years. What amount must be deposited quarterly into an account that earns 5.3% interest, compounded quarterly, in order to reach your goal? Round your answer to the nearest cent, if necessary

Answer 1

Given:

• Amount to save, A = $28,000

,

• Time, t = 6 years

,

• Interest rate, r = 5.3% ==> 0.053

,

• Number of times compounded = quarterly = 4 times

Let's find the amount that must be deposited into the account quarterly.

Apply the formula:

$FV=P(\frac{(1+\frac{r}{n})^{nt}-1}{\frac{r}{n}})$

Where:

FV is the future value = $28,000

r = 0.053

n = 4

t = 6 years

Thus, we have:

$28000=P(\frac{(1+\frac{0.053}{4})^{4\times6}-1)}{\frac{0.053}{4}}$

Let's solve for P.

We have:

$\begin{gathered} 28000=P(\frac{(1+0.01325)^{24}-1}{0.01325}) \\ \\ 28000=P(\frac{(1.01325)^{24}-1)^{}}{0.01325}) \\ \\ 28000=P(\frac{1.371509114-1}{0.01325}) \\ \\ 28000=P(\frac{0.371509114}{0.01325}) \end{gathered}$

Solving further:

$28000=P(28.0384237)$

Divide both sides by 28.0384237:

$\begin{gathered} \frac{28000}{28.0384237}=\frac{P(28.0384237)}{28.0384237} \\ \\ 998.6=P \\ \\ P=998.6 \end{gathered}$

Therefore, the amount that must be deposited quarterly into the account is $998.60

ANSWER:

$998.60