SOLUTION: Alex expects to graduate in 3.5 years and hopes to buy a new car then. He will need a 20% down payment, which amounts to $4200 for the car he wants. How much should he save now to

Algebra ->  Finance -> SOLUTION: Alex expects to graduate in 3.5 years and hopes to buy a new car then. He will need a 20% down payment, which amounts to $4200 for the car he wants. How much should he save now to       Log On


   

Question 1194570: Alex expects to graduate in 3.5 years and hopes to buy a new car then. He will need a 20% down payment, which amounts to $4200 for the car he wants. How much should he save now to have $4200 when he graduates if he can invest it at 8% compounded monthly? (Round your final answer to two decimal places.)
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
f = p * (1 + r) ^ n
f is the future value
p is the present value
r is the interest rate per time period
n is the number of time periods.
in this problem:
f = 4200
r = .08 per year divided by 12 = . 08/12 per month.
n = 3.5 year * 12 = 42 months.
formula becomes 4200 = p * (1 + .08/12) ^ 42
solve for p to get: = 3177.242655.
confirm by replacing p with that and solving for f.
you get f = 3177.242655 * (1 + .8/12) ^ 42 = 4200.
solution is confirmed to be good.\
your solution is that he needs to invest 3177.25 now at 8% per year compounded monthly to have 4200 available at the end of 3.5 years.
let me know if you have any questions.
theo