Question

In your budget, you plan on putting a $3000 deposit on a car in 4 years. You currently have some extra money that you could put into a savings account. If that savings account earns you 4% interest, compounded monthly, how much would you need to deposit today to have $2000 in 4 years?

Please show me proper work and give a good explanation on how you got your answer.

Answer 1

1704.74 = P

Explanation:

The formula for compound interest is

A = P(1+r/n) ^nt where

A is the amount in the account

P is the principle

r is the interest rate

n is the number of times the interest is compounded per year

t is the time in years

2000 = P (1+.04/12)^12*4

2000 = P (1.003333333)^48

Divide each side by (1.003333333)^48

2000/ (1.003333333)^48= P (1.003333333)^48/ (1.003333333)^48

1704.74110 = P

Rounding to the nearest cent

1704.74 = P