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nataly862011 [7]
3 years ago
8

Tyrone wants to spend $15,000 on a new car three years from now. He opens a savings account and deposits $3,250 today. One year

from now, he plans to deposit $3,000 in the account, and one year after that, he plans to deposit another $3,000. If the account earns 6% interest per year, how much additional money will Tyrone need to meet his $15,000 goal?
Business
1 answer:
WITCHER [35]3 years ago
7 0

Answer:

Tyrone will need $4578.4 to meet his $15,000 goal

Explanation:

Tyrone wants to spend amount on a new car three years from now=$15,000

Formula : A=P(1+\frac{r}{100})^n

Where A=future value

P=present value  

r=rate of interest

n=time period.

Future value of deposits=3250 \times(1.06)^3+3000 \times(1.06)^2+3000 \times (1.06)

Future value of deposits= 10421.60

So, additional money needed=15000-10421.60=4578.4

Hence  Tyrone will need $4578.4 to meet his $15,000 goal

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Logic behind above is that whatever portion of net profit is retained by the Company, is used in the Company's operations, which earns certain percentage of equity known as return on equity. By multiplying both return on equity with retention ratio, we assume that the practice will continue for foreseeable future and the Company will continue to grow at the calculated growth rate.

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