Question

Ingrid wants to buy a $15,000 car in 5 years. How much money must she deposit at the end of each quarter in an account paying 5.9% compounded quarterly so that she will have enough to pay for her car? How much money must she deposit at the end of each quarter? SI (Round to the nearest cent as needed.)

Answer 1

We can calculae quarterly deposit amount by using future value annuity formula
Future Value of an Ordinary Annuity
= C*[(1+i)^n-1]/i]
Where,
C= Cash Flow per period ,let us assume X
i = interest rate per period i.e. 5.9/4 =1.475%
n=number of period i.e. 4*5 years = 20
$15000= $X[ (1+0.01475)^20 -1 /0.01475]
$15000= $X[ (1.01475)^20 -1 /0.01475]
$15000= $X[ (1.3402 -1] /0.01475
X=$650.28
Threrefore quarterly payment would be $650.28