Question

Ashif needs to buy a new refrigerator within the next 2 years. The cost will be $2000, and Ashif has found a savings account offering him an annual interest rate of 4%, compounded monthly. How much money will Ashif need to invest to be able to buy the refrigerator? Show your work by either typing your steps into the box, or attaching a photo file of your completed work

Answer 1

Explanation:

To calculate how much money Ashif will need to invest to be able to buy the refrigerator, we can use the formula for the future value of a present amount compounded monthly.

The formula for the future value of a present amount compounded monthly is:

FV = P * (1 + r/12)^(n*12)

Where:

FV = Future value

P = Present amount (initial investment)

r = Annual interest rate

n = Number of years

In this case, the future value (FV) is $2000, the annual interest rate (r) is 4%, and the number of years (n) is 2.

Let's calculate the initial investment (P):

2000 = P * (1 + 0.04/12)^(2*12)

Simplifying the equation, we have:

2000 = P * (1.003333)^24

To solve for P, we divide both sides of the equation by (1.003333)^24:

P = 2000 / (1.003333)^24

Using a calculator to evaluate the expression, we find:

P ≈ $1,874.57

Therefore, Ashif will need to invest approximately $1,874.57 to be able to buy the refrigerator in 2 years with an annual interest rate of 4%, compounded monthly.