Question

Exotic Faucets and Sinks, Ltd., guarantees that its new infrared sensor faucet will save any household that has two or more children at least $30 per month in water costs beginning 1 month after the faucet is installed. If the faucet is under full warranty for 5 years, the minimum amount a family could afford to spend now on such a faucet at an interest rate of 6% per year, compounded monthly, is closest to:

Answer 1

$1,152

Step-by-step explanation:

Data provided in the question

Minimum amount for water cost per month = $30

Time period for full warranty = 5 years

Interest rate = 6% per year

Based on the above information, the minimum amount for spending now in compounded monthly is

= Minimum amount for water cost per month × (P/A ; interest rate and time period)

= $30 × (P/A ; 0.5% and 60 months)

= $1,152

Refer to the P/A table

In compounded monthly we divided the rate by 12 months and multiplied the time period by 12 months