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Ted owns a small florist shop. Since his business is booming, his realizes he will soon need one more delivery van. He decides he will purchase a full size van versus a minivan, which he currently owns.
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6 votes
6 votes
Ted owns a small florist shop. Since his business is booming, his realizes he will soon need one more delivery van. He decides he will purchase a full size van versus a minivan, which he currently owns. The van he is looking to buy in 3 years will cost him $25,000. How much should he invest each quarter into an account that pays 3% per year compounded quarterly, so that he can have the desired funds in 3 years

User Rich Catalano
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1 Answer

10 votes
10 votes

Answer:

$1998.79

Step-by-step explanation:

Quarterly payment = future value /annuity factor

Annuity factor = {[(1+r)^mn] - 1} / r

r = interest rate = interest rate / number of compounding 3%/4

N = number of years

m = number of compounding

Annuity factor =[ (1.0075)^12 - 1] / 0.0075 = 12.507586

Quarterly payment = $25,000 / 12.507586 = $1998.79

User Jianwei
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3.2k points
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