Question

Ted earned $4,300 from his summer internship that he plans to invest so that he can buy a used car after three years. Ted chooses a bank that offers 5.5% compounded quarterly. Can Ted buy a car that costs $4,700 after three years? Round your numbers to the nearest cent.

Answer 1

Answer: Yes he will be

Explanation:

To find out if Ted can afford the car, find the future value of $4,300 in three years.

First convert the number of years and rates to quarterly values as this is the compounding period:

Term = 3 * 4 quarters = 12 quarters

Rate = 5.5% / 4 = 1.375% per quarter

Future value = Amount * ( 1 + rate) ^ term

= 4,300 * ( 1 + 1.375%)¹²

= $5,065.69

Considering that Ted makes $5,065.69 in 3 years, he will be able to buy a car that costs $4,700.