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Ingrid wants to buy a ​$20000 car in 8 years. How much money must she deposit at the end of each quarter in an account paying 5.9​% compounded quarterly so that she will have enough to pay for her​ car?

2 Answers

3 votes

Final answer:

Ingrid must deposit approximately $463.04 at the end of each quarter into an account paying 5.9% interest compounded quarterly to have $20,000 in 8 years.

Step-by-step explanation:

To determine how much Ingrid must deposit at the end of each quarter to save for a $20,000 car in 8 years with an account paying 5.9% interest compounded quarterly, we need to use the future value of an annuity formula, which is given as:


FV = P × { [(1 + r)^n - 1] / r }

Where FV is the future value of the annuity, P is the annuity payment per period, r is the interest rate per period, and n is the total number of periods.

First, convert the annual interest rate to a quarterly rate by dividing it by 4, since there are 4 quarters in a year:


r = (5.9% / 4) / 100 = 0.01475 per quarter

Next, calculate the total number of periods (quarters) in 8 years:


n = 8 years × 4 quarters/year = 32 quarters

Now, rearrange the annuity formula to solve for P:


P = FV / { [(1 + r)^n - 1] / r }

Plugging the values we have into the formula, we get:


P = $20,000 / { [(1 + 0.01475)^32 - 1] / 0.01475 }

Finally, calculate the amount to be deposited each quarter:


P = $20,000 / { [(1 + 0.01475)^32 - 1] / 0.01475 } = $463.04

Ingrid must deposit approximately $463.04 at the end of each quarter to have $20,000 in 8 years.

User Ravi Yenugu
by
8.5k points
5 votes

Ingrid must deposit $402.74 at the end of each quarter for 8 years in order to have enough money to pay for her car.

User Ricardo Gellman
by
8.2k points
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