Question

Suppose you'd like to see if I have money to pay cash for the next year. The goal is to save an extra $26,000 over the next six years. What amount of quarterly payments must you make it into an account that earns 5.5% interest in order to reach your goal?

Answer 1

Amount he must save to earn his goal = $7193.1≅

Explanation:

The 5.5% interest is compounded quarterly, hence the compound interest expression is used

A = P(1+r%)ⁿ

A = $26000

P = ?

r = 5.5%

n = 4 x 6 = 24 quarters

P = A ÷ (1+r%)ⁿ = 26000 ÷ (1 + 0.055)²⁴ = 7193.070497956 = $7193.1≅