SOLUTION: You want to save in order to purchase a motorcycle, so take the APR to be 7.2%. If I was to deposit 300 dollars each month, how much will I have toward the purchase of a motorcycle

Algebra ->  Customizable Word Problem Solvers  -> Finance -> SOLUTION: You want to save in order to purchase a motorcycle, so take the APR to be 7.2%. If I was to deposit 300 dollars each month, how much will I have toward the purchase of a motorcycle      Log On

Ad: Over 600 Algebra Word Problems at edhelper.com


    

Question 1138791: You want to save in order to purchase a motorcycle, so take the APR to be 7.2%. If I was to deposit 300 dollars each month, how much will I have toward the purchase of a motorcycle after three years.
Answer by ikleyn(52797) About Me  (Show Source):
You can put this solution on YOUR website!
.

It is a classic Ordinary Annuity saving plan. The general formula is 


    FV = P%2A%28%28%281%2Br%29%5En-1%29%2Fr%29,    (1)


where  FV is the future value of the account;  P is the monthly payment (deposit); r is the monthly percentage yield presented as a decimal; 
n is the number of deposits (= the number of years multiplied by 12, in this case).


Under the given conditions, P = 300;  r = 0.072/12;  n = 12*3 = 36.  So, according to the formula (1), you get at the end of the 3-rd year


    FV = 300%2A%28%28%281%2B0.072%2F12%29%5E%2812%2A3%29-1%29%2F%28%280.072%2F12%29%29%29 = 300%2A%28%28%281%2B0.072%2F12%29%5E36-1%29%2F%28%280.072%2F12%29%29%29 = $12015.08


Note that you deposit only  12*3*$300 = $10800.  The rest is what the account earns/accumulates in 3 years.

-----------------

On Ordinary Annuity saving plans,  see the lessons
    - Ordinary Annuity saving plans and geometric progressions
    - Solved problems on Ordinary Annuity saving plans
in this site.

The lessons contain  EVERYTHING  you need to know about this subject,  in clear and compact form.

When you learn from these lessons,  you will be able to do similar calculations in semi-automatic mode.