Question

Jose received $550 for his birthday from his family. He wishes to buy a motorcycle and decides to use his birthday money towards it. He'd like to have a bigger down payment so he invests his money in a saving account that pays 4% per year compounded quarterly. If Jose purchases the motorcycle in 3 years, how much will he have available towards the down payment for his motorcycle

Answer 1

Answer:

$619.75

Explanation:

This is a problem of future value with compounded interest.

The equation that describes the future value of an amount (P) deposited for a period of 'n' years at an annual rate (r) compounded quarterly is:

$FV = P*(1+\frac{r}{4})^{4n}$

For a $550 investment at 4% per year for 3 years, the future value is:

$FV = 550*(1+\frac{0.04}{4})^{4*3}\\FV=\ 619.75$

In 3 years, Jose will have $619.75 available towards the down payment for his motorcycle.