Question

Jose received $250 for his birthday from his family. He wishes to buy a motorcycle and decides to use his birthday money towards it. He'd like to have a bigger down payment so he invests his money in a saving account that pays 5% per year compounded quarterly. If Jose purchases the motorcycle in 2 years, how much will he have available towards the down payment for his motorcycle?

Answer 1

He will have $276.10 available towards the down payment for his motorcycle

Explanation:

The compound interest formula is given by:

`A = P(1 + (r)/(n))^(nt)`

Where A is the amount of money, P is the principal(the initial sum of money), r is the interest rate(as a decimal value), n is the number of times that interest is compounded per unit t and t is the time the money is invested or borrowed for.

In this problem, we have that:

`P = 250, t = 2, r = 0.05`

Compounded quarterly, so n = 12/4 = 3.

We have to find A.

`A = P(1 + (r)/(n))^(nt)`

`A = 250(1 + (0.05)/(3))^(3*2)`

`A = 276.1`

He will have $276.10 available towards the down payment for his motorcycle