Question

Reuben would like to buy sports car that cost $35,000 today when he graduates from college in five years if the rate of information is expected to be 3% per year over the next five years how much wood Ruben expect to pay for a similar sports car in today's dollars

Answer 1

Answer:

$40,250

Step-by-step explanation:

Amount he will pay in the next five years = Principal + Interest

Given Principal =  $35,000

Simple Interest = PRT/100

R is the rate = 3%

T is the time in years = 5years

SI = 35,000 * 3 * 5/100

SI =  $5,250

Amount =  $35,000  +  $5,250

Amount =  $40,250

Ruben will have to pay $40,250 after 5years

Answer 2

Answer:

Reuben would pay $40574.59 in 5 years time

Step-by-step explanation:

The present value of the car, P = $35,000

Rate per year, R = 3% = 0.03 (Note that the rate is given per year and not for the whole 5 years, this means that the rate cannot be used over a period of 5 years)

Amount = P + RP = P (1 + R) = P ( 1+0.03)

Amount = 1.03P

Total time = 5 yrs

After year 1:

A = 1.03 * 35000 = $36,050

After year 2:

A = 1.03 * 36050 = $37,131.5

After year 3:

A = 1.03 * 37131.5 = $38,245.445

After year 4:

A = 1.03 * 38,245.445 = $39,392.808

After year 5:

A = 1.03 * 39,392.808 = $40574.59