Question

Sarah wants to buy a $5000 car when she graduates. She deposits $85 at the end of each month in an account that pays 9% compounded monthly. She will graduate in 4 years. Will she have enough by then?

Answer 1

Sarah will have enough money to buy a $5000 car when she graduates.

Step-by-step explanation:

To determine whether Sarah will have enough money to buy a $5000 car when she graduates, we can calculate the future value of her monthly deposits over 4 years with a 9% interest rate compounded monthly.

First, we need to calculate the number of deposits Sarah will make over 4 years. Since she deposits $85 at the end of each month, the total number of deposits will be 4 years * 12 months = 48 deposits.

Next, we can calculate the future value of these deposits using the formula for compound interest: FV = PV * (1 + r/n)^(n*t), where FV is the future value, PV is the present value of the deposits, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years.

Plugging in the values, we get FV = $85 * (1 + 0.09/12)^(12*4) = $5,613.59.

Therefore, Sarah will have enough money to buy a $5000 car when she graduates.