Question

Mathew knows that he will need to buy a new car in 4 years. The car will cost $15,000 by then. How much should he invest now at 10%, compounded quarterly, so that he will have enough to buy a new car?

Answer 1

So let's start with the cost of the car

It would be 15,000 in 4 years.

Now that we have that, we will now multiply 4 by 10%, which will equal 40.

Now, divide 40 by 15000 to get to 3750

Answer 2

Mathew should invest $10,104.37.

A = $15,000 future value



A = P(1 + r/4)^n



P = A/((1 + r/4)^n)



P = 15000/((1 + 0.10/4)^16)



P = $10,104.37