Question

You are saving money to buy a car. You put $2500 in a savings account that pays 4% annual interest compounded monthly (hint n = 12). A. Write a function that models the amount of the money in the account over time. B. Find the cost of the car after 10 years.

Answer 1

FV= $3,726.93

Explanation:

Giving the following information:

Initial investment (PV)= $2,500

Interest rate (i)= 0.04/12= 0.003333 monthly

Number of periods (n)= x months

To calculate the future value giving any number of months, we need to use the following formula:

FV= PV*(1 + i)^n

For 10 years:

n=10*12= 120 months

FV= 2,500*(1.003333^120)

FV= $3,726.93