Question

scenarios to share with the class. • Sarah wants to save for a car. She has $4,250 in a savings account earning 1.49% compounded quarterly. If Sarah has four years until she gets her driver's license, will she have enough to buy a car? If not, what do you recommend that she do to reach her goal?

Answer 1

Solution

For this case we can use the following formula:

$A=P(1+\frac{r}{n})^{nt}$

Where A= future value, P= 4250 present value, r= 0.0149 and n = 4 since the rate is compounded quarterly

t= 4 years

If we replace we got:

$A=4250(1+\frac{0.0149}{4})^{4\cdot4}=4510.501$

Then we can conclude that if car price is lower than 4510$ she can get one