The cost of a new automobile is $11,900. If the interest rate is 4%, how much wo

Question

The cost of a new automobile is $11,900. If the interest rate is 4%, how much would you have to set aside now to provide this sum in four years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

You have to pay $15,000 a year in school fees at the end of each of the next five years. If the interest rate is 7%, how much do you need to set aside today to cover these bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

You have invested $75,000 at 7%. After paying the above school fees, how much would remain at the end of the five years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The cost of a new automobile is $11,900. If the interest rate is 4%, how much would you have to set aside now to provide this sum in four years? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Amount to be Set Aside = Amount Required/(1+Interest Rate)^Years = 11900/(1+0.04)^4 = $10172.17

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Part B:

Amount to be Set Aside Today = 15000/(1+.07)^1 + 15000/(1+.07)^2 + 15000/(1+.07)^3 + 15000/(1+.07)^4 + 15000/(1+.07)^5 = $61502.96

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Part C:

Amount Remaining = 75000 - 61502.96 = 13947.04*(1+7%)^5 = 19561.45.

Thanks.

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