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Marta_Voda [28]
3 years ago
12

A car's price is currently $20,000 and is expected to rise by 4% a year. if the interest rate is 6%, how much do you need to put

aside today to buy the car one year from now?a. $18,182
b. $19,231

c. $19,263d. $14,085
Business
1 answer:
kati45 [8]3 years ago
5 0

Answer:

  • <u><em>$19,591.63</em></u>

Explanation:

<u />

<u>1. Calculate the price of the car in a year from now.</u>

This is add the 4% on the current price:

  • $20,000 × 1.04 = $20,800

<u />

<u>2. Calculate the amount of money that must be put aside to have $20,800 in a year:</u>

<u />

Use the formula of monthly compound interest, with 6% annual interest

  • r = 6% / 12 = 0.06/12 = 0.05
  • P(1 + 0.005)¹² = $20,800
  • P = $20,800 / (1 + 0.005)¹² = $19,591.63
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