Question

Jim works overtime to save $500 per month for a pickup truck. The savings account Jim uses earns him 5% interest, compounded monthly. In two years, Jim will have blank1 in savings. He will have earned blank2 in interest on his savings.

options for blank1; A: 12,000, B: 12,353, C:12,593
options of blank2; A: 353, B: 500, C:593

Answer 1

Blank1= C:12.593

Blank2= C:593

Explanation:

First we need to remember the equation for future value of annuity

FV=C(((1+i)ⁿ-1)/i

PV is 500

i=0,05/12=0,004

n=24 months

FV=500((1+0,0041)²⁴-1)/0,004

FV=12.593

If the total of payments were 500x24=12.000

it means for interest is 593