Question

A problem is listed below. Identify its type. 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 2 years will cost him $33,000. How much should he invest each quarter into an account that pays 4% per year compounded quarterly, so that he can have the desired funds in 4 years?

Answer 1

Quarterly deposit= $1,912.17

Step-by-step explanation:

Giving the following information:

The van he is looking to buy in costs $33,000.

Interest rae= 4% per year compounded quarterly

Number of years= 4 years

First, we need to calculate the real interest rate:

Interest rate= 0.04/4= 0.01 per quarter

Now, to calculate the quarterly deposit, we need to use the following formula:

FV= {A*[(1+i)^n-1]}/i

A= quarterly deposit

Isolating A:

A= (FV*i)/{[(1+i)^n]-1}

A= (33,000*0.01) / [(1.01^16)-1]

A= $1,912.17